If you receive Social Security benefits, you can draw a red circle around October 13, 2022 on your calendar. This is when the Social Security Administration (SSA) is likely to announce how much of a raise you’ll get for next year.
But you don’t have to wait until then to get a pretty good idea of what the next cost-of-living adjustment (COLA) will be. Here’s what your Social Security increase would be like as things stand.
The current snapshot
SSA calculates annual COLAs by comparing the averages of the Consumer Price Index for Urban Wage and Clerical Workers (CPI-W) for the third quarter of the current year and the previous year. Your Social Security increase will be the percentage increase year over year (if any).
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Keep in mind that the CPI-W differs slightly from the consumer price index for all urban consumers (CPI-U). The CPI-U receives more attention in the press as the most commonly used measure of inflation.
One way to determine what the COLA would be to date is to compare only the CPI-W averages for the first two months of the third quarter in 2021 and 2022. Using this approach, your Social Security increase for 2023 would be 8.9%.
Another method is to assume that September’s CPI-W will be the same as August’s. This calculation would yield a slightly lower COLA of 8.7%.
Follow the trends
Inflation has moderated somewhat over the past two months. There are reasons to expect the trend to continue. Fuel prices are lower. Housing prices have also started to fall.
Suppose the CPI-W falls in September at the same rate as from July to August. If this happens, your next Social Security increase will be close to 8.7%.
But it is possible that inflation will fall at a faster pace in September than in previous months. For example, the prices of many products sold in August reflected higher transportation costs because they were shipped before fuel prices began to fall. These prices could come down as lower transportation costs are factored in.
What could the Social Security hike be if inflation absolutely plunges this month? In theory, the CPI-W could dip so much that it makes the average for the third quarter of 2022 lower than the average for the same period in 2021. In this case, Social Security beneficiaries would not receive COLAs for 2023.
However, the chances of this scenario occurring are very slim. The SSA began calculating annual COLAs in 1975. The biggest monthly drop in CPI-W since then was 2.3% in November 2008. If inflation falls in September by the same percentage as this record low, your Social Security increase would be 7.9. %.
A big COLA no matter what
Of course, it is possible that the CPI-W will reverse its current trend and rise in September. This would increase the increase in Social Security to a level above all the figures mentioned previously.
No matter what happens with inflation this month, Social Security recipients are almost certain to get their biggest COLA in four decades. Unfortunately, this increase may not be enough to fully offset the higher cost of living.
Some parts of the United States have worse inflation than others. In addition, retirees will not receive their benefit increase until January. In the meantime, they may have to continue paying historically high prices for many products. The next big COLA, regardless of size, may not have as much pop as you would like.
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