Increasing Social Security by 11% is practically impossible. But that’s fine.

(Keith Spetses)

We’re likely less than two weeks away from knowing how high our Social Security checks will be in 2023. The Social Security Administration (SSA) plans to announce in mid-October.

There has been a lot of predictions in recent months about the next cost-of-living adjustment (cola) will be. Of these, the most optimistic estimates are almost certainly wrong. It is now clear that increasing Social Security by 11% is practically impossible. But that’s fine.

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The SSA will use six figures to calculate Social Security COLA for 2023. The agency first determines the average consumer price index for urban wage earners and clerical workers (CPI-W) for the three months in the third quarter of 2021. It then calculates the third-quarter average of This year using CPI-W numbers for July, August and September.

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Five of these six numbers are already known. The Bureau of Labor Statistics plans to release its September Consumer Price Index (CPI-W) on October 13, 2022. If the third-quarter 2022 average is higher than the third-quarter 2021 average (which is all but a guarantee), then The percentage increase will be next year’s COLA.

An 11% increase in Social Security is mathematically possible. However, the odds are high against COLA that high. CPI-W should rise in September by much more than the largest one-month increase ever.

Such a historically high jump seems particularly unlikely given the sentiments of Americans. US consumers’ expectations for near-term inflation fell in September to the lowest level last year, according to a survey by the University of Michigan. These improved forecasts are largely the result of lower gasoline prices.

don’t worry be happy?

Although an 11% increase is unlikely, Social Security recipients must still be in stock to get the highest level of COLA in more than 40 years. It is likely that the benefits will Increase in pitch by 8.7%. This will be COLA’s fourth largest since 1975.

In one important way, a lower-than-expected COLA drop would indeed be good news. The projected Social Security increase of 8.7% is lower than previous estimates of close to 11% because inflation (as measured by CPI-W) is fairly moderate.

The only way the Social Security increase will be less than 8.7% is if inflation drops in September. Practically speaking, this would be cause for celebration.

why? Social Security recipients won’t get a “boost” until January. However, they will have to pay for the goods and services for several more months before the COLA bump reaches their Social Security checks. Lower inflation means less fiscal burden in the meantime.

Enemy No. 1

Legendary investor Warren Buffett once said, “Inflation fools almost everyone.” He was right. Inflation, in particular, is enemy number one for many Social Security recipients.

COLAs help protect against the erosion of Social Security benefits, but they’re not perfect. Ideally, inflation would return to its low levels in recent years and give Social Security recipients more purchasing power.

This may just happen. The Federal Reserve remains committed to fighting inflation by raising interest rates. Investors seem bullish that inflation will decline based on the relatively small gap between the yields of one-year T-IIPs and one-year T-bills. (The lower the difference in these returns, the lower the expectations for future inflation.)

If your next Social Security COLA is lower than expected, that’s really okay. It will mean that the biggest enemy of retirees and other Social Security recipients is losing the battle.

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