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Inflation could drive Social Security’s cost-of-living adjustment in 2023

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Retirees feeling the pinch of higher prices, rest assured: There could be a much bigger Social Security cost-of-living adjustment next year.

A preliminary estimate from the Senior Citizens League, a nonpartisan seniors group, finds that the 2023 cost of living adjustment, or COLA, could reach 7.6%, based on the latest index data. consumer prices.

By comparison, Social Security’s COLA for 2022 in January was 5.9%, the biggest increase in 40 years.

Data released on Thursday revealed that the consumer price index for all urban consumers, also known as CPI-U, hit a new 40-year high with a 7.9% increase during of the last 12 months.

The Social Security COLA is calculated based on another measure, the Consumer Price Index for Urban and Office Workers, or CPI-W.

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The CPI-U is a more general index that tracks retail prices paid by all urban consumers. The CPI-W, on the other hand, is a more specialized measure of retail prices affecting urban hourly wage earners and office workers, according to the US Bureau of Labor Statistics.

High oil prices were a factor in the current Senior Citizen League estimate of 7.6%. The CPI-W places a higher weight on food, clothing, transportation and other goods and services compared to the CPI-U.

Granted, the official COLA for next year won’t be determined by the Social Security Administration until October. Therefore, there are still many months of data to come.

Much of the height of next year’s COLA will depend on inflation.

The Federal Reserve is expected to raise interest rates in an attempt to curb rising prices this year.

This could push the COLA lower than the current estimate. Moderating prices could provide relief to retirees and other seniors struggling with high consumer costs.

The Senior League found that the 5.9% COLA for 2022 is already insufficient for many pensioners.

The average retiree benefit is currently about $1,564, according to the Senior Citizens League. But in March, the edge is expected to be $1,698.50 to follow an 8.6% year-over-year increase in CPI-W in February. To date, there is a total shortfall of $107.90 in benefits for the average retiree, according to calculations by the Senior Citizens League.

Of course, Social Security isn’t meant to replace a person’s entire retirement income, said Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League.

In order to adjust for inflation, retirees would likely have to withdraw extra money from a pension or other investments to make up the difference for record costs, she said.