Social Security benefits account for a major source of income for most elderly individuals—roughly 66 million Americans receive payments on a monthly basis. But, with inflation nearing record levels, many seniors are finding it difficult to make ends meet as their way of life becomes more expensive.
To combat this, the Social Security Administration (SSA) is issuing a cost-of-living adjustment (COLA) starting in 2023. Social Security beneficiaries will receive an 8.7% increase in their benefits, which is the most significant increase we’ve seen in 40 years. In comparison, the cost-of-living adjustment was just 5.9% for 2022.
How a COLA is Calculated
The cost-of-living adjustments began in 1973 to ensure Social Security and Supplemental Security Income keep up with inflation and compensate the beneficiaries under current price standards. It’s determined based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
The Social Security Administration looks at whether the CPI-W changed from the previous year’s third quarter to the current year’s third quarter to determine whether they need to take action. If there’s an increase, the SSA will administer a COLA for the year based on their findings, rounding the number to the nearest tenth of a percent. If there isn’t an increase, there’s no COLA for that year.
Right now, the average retired worker receives $1,681 a month in Social Security benefits. But, in 2023, this will increase to $1,827 per month. Aged couples that are both receiving benefits can expect their payments to increase from $2,734 to $2,972 in 2023.
If you haven’t claimed your Social Security benefits yet and plan to wait, you won’t miss out on cost-of-living increases—your benefits are adjusted by COLA every year until you do.
3 Ways Seniors Can Cope With Inflation
Most seniors only use Social Security as a portion of their income, but for 12% of men and 15% of women, it accounts for more than 90% of their income. That means, even with a COLA, these seniors will be trying to stretch a tight budget to fund their retirement.
If you’re struggling to get by due to high prices, here are three steps you can take:
- Review your budget: If you want to find more room in your budget, there are really only two steps you can take — increase your earnings or cut your costs. If bringing in more income isn’t an option, you need to get creative with your spending. Avoid eating out, cut down on unnecessary subscriptions, and switch to buying generic products, all of which can help you cut down on your expenses.
- Consider downsizing: Your home is probably your biggest expense, so you might consider downsizing. If you move into an apartment or condo, services like lawn maintenance are usually taken care of for you, and moving to an area that has shops/services within walking distance will limit transportation costs.
- Look into relocating: Finally, you might consider relocating to a state with a lower cost of living. For instance, some cities in Florida and Tennessee are known for being affordable places to retire. With home prices at record highs, now is a great time to sell your house for a great price.
The 2023 COLA will give many seniors more room in their monthly budget. By continuing to look for ways to cut back and make the most of your money, you’ll be better able to provide for your needs in retirement.