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The Social Security Administration announced that starting in January, Social Security checks will increase by 8.7%, the largest cost-of-living COLA increase since 1981. The increase will benefit 70 million Social Security recipients benefits which will go from $1,699, on average, to $1,814. This will be welcome news for those who have been struggling with high inflation.
If you are thinking about taking early retirement, think again. With the stock market in a funk and inflation soaring, this is a painful time for everyone but especially those who are living on a fixed income. When thinking about retirement, don’t look at the average life expectancy as the most probable outcome. This is an average, and many people live much longer. Sharon Carson, executive director of retirement insights for J.P. Morgan Asset Management, told USA Today that you should plan for 35 years of retirement if you are a non-smoker in excellent health. She also says that the lower your expected long-term investment return (which is typical as you get older), the more it pays to wait longer before claiming Social Security. So, for instance, a woman who expects a long-term investment return of 5.5% and has a life expectancy of 88 should consider claiming at age 70.
According to an estimate by Mary Johnson, a policy analyst for the Senior Citizen League, an advocacy group, Social Security Payments could see the largest increase since 1982 in 2023. That’s the good news. The bad news is that inflation is still very high so the 8.7% increase may not mean much as far as purchasing power goes. For the average retiree who currently gets a check for $1,656, the cost-of-living hike would bring them an additional $144.10 a month in 2023, making the average payment $1,800.
Social Security payments are expected to rise by more than 10% next January given the soaring inflation that we have experienced. Mary Johnson, policy analyst at The Senior Citizens League, cautions that this number may be too high, particularly if inflation cools later in the year. The best case scenario : A huge increase in January while inflation cools to a reasonable level in 2023.
U.S. consumer inflation hit 9.1% last month, a rate that we have not seen in more than four decades. There’s good news and bad news here. Seniors will get the biggest increase in Social Security than they have seen in decades. And if you own your own home, you will be in a better financial situation than those who are renting because, as long as you have a fixed-rate mortgage, your payments won’t go up. The biggest cost increase right now is gas, up 11.2% from the previous month and up 60% from a year ago. This is followed by groceries, which are up 12.2% from a year ago. Let’s hope that the Federal Reserve can get this economy back on track.
Inflation in the U.S. hit a 40 year high of 7.9%, which is causing financial problems for many seniors. Economists say that this is forcing many retirees back into the workforce. Thankfully, this may ease staffing shortages which has hit a number of industries. “We’re beginning to see the migration of the older cohort who expected to live on fixed income in a low interest-rate and low-inflation environment, Joseph Brusuelas, chief economist at RSM US LLP, told The Wall Street Journal. “Really what you’re dealing with is an inflationary shock that has elicited a change in behavior,” he said. The share of people over 55 either working or looking for a job rose to 38.9% in March from 38.4% in October. That translates to more than 480K people in that age group entering the labor force during the last six months.
Seniors were happy to get a big increase of 5.9% to their Social Security payments this year, but it may not have been enough. It was announced by the Bureau of Labor Statistics today that The Consumer Price Index rose 7.5% year-over-year in January. That came in well above the median forecast of 7.3% from economists surveyed by Bloomberg. It is the strongest consumer price growth since 1982!
According to a Pew Research poll, roughly half of Americans younger than age 50 believe they won’t receive any Social Security benefits. However, that’s unlikely to be the case. It’s true, we haven’t had a surplus in the Social Security Trust Fund since 2010 and if nothing is done in the next couple of decades there would have to be cuts in Social Security benefits. The current date for that is 2034. However, this would be a big political fiasco for anyone in office at the time, so politicians are likely to act well before that happens. Hopefully they will raise payroll taxes. However, another option they have is to keeping raising the year in which you retire.
Many seniors have been elated to read in the paper that their Cost of Living Adjustment (COLA) in their Social Security Payments is likely to rise more than 6% come January. However, before you get too excited, news just broke that inflation in the U.S. hit a 31 year high in October at 6.2%. “It increasingly appears that the COLA for 2022 will be the highest paid since 1983 when it was 7.4%,” Mary Johnson, Social Security policy analyst for the Senior Citizens League, told AARP Bulletin (October, 2021 P4). The increase in 22021 was only 1.3% and over the past 10 years it has increased by 1.7%. Let’s hope inflation rates decline next year!
A House bill sponsored by Democrats called Social Security 2100 : A Sacred Trust does much to help seniors, boosting benefits in a number of areas. Introduced by Rep. John Carson, D-Conn. who serves on the House Ways and Means Social Security Subcommittee is a bit perplexing as it is adding to a looming deficit and does nothing to address how our nation will pay for it. Some key issues in the bill:
Benefits would be set at 125% above the poverty line and tied to current wage levels;
Both new and existing beneficiaries would get a 2% increase in their benefit, on average;
The bill would repeal rules that reduce Social Security benefits for workers and their spouses, widows or widowers who also have pension income (called the Windfall Elimination Provision and Government Pension Offset); and
Annual cost-of-living adjustments would be tied to the Consumer Price Index for the Elderly, or CPI-E.
The latest estimates from the government are that by 2034, Social Security benefits will drop to 78% of what has been promised, and this new bill extends that date to 2038 to give Congress more time to come up with a long-term solution to the program’s solvency issues. There is a provision for an increase in the wages cap where workers have to pay Social Security Tax (up from $147,000 to $400,000). However, this will likely be offset from a provision in the bill which would only require Social Security recipients to pay taxes on earnings above $35,000 ($50,000 for couples), up significantly from $25K and $32K respectively. This seems to me like Congress just kicking the can down the road—why not try and solve this issue now?