Retirees will have to wait a few more days to get official news about next year’s Social Security cost of living adjustments, but they are on track for an average benefit hike of $140 a month starting January, according to data published by the Federal Reserve Bank of Cleveland.
That would be an 8.7% annual hike, the biggest in more than 40 years.
According to the Social Security Administration the average monthly retirement benefit is $1,627.
We won’t know for sure until the official September inflation data have been published later this week. The Social Security Administration will use those numbers to calculate the official annual COLA.
But the Cleveland Fed publishes a running “nowcast” of inflation data, incorporating available economic data to provide a good indication of what the official numbers are likely to show.
Social Security’s cost of living adjustment is calculated by comparing the consumer price indexes for the months of July, August and September with the numbers for the same months a year earlier. July’s prices this year were more than 9% above those of July in 2021, while August’s were ahead by 8.65%. The Cleveland Fed data suggests September this year will be about 8.2% ahead of September last year.
That said, there are unknown factors at play. The COLA figures are based on one official inflation figure, CPI-W, which are slightly different from the more widely reported CPI-U figure. (There is a third, CPI-E, supposedly representing inflation for older Americans, which some argue should be used instead.)
Oh, and of course inflation has been shocking people in power all year, suggesting that no one should be too certain about the next official numbers until they are published.
Next year’s COLA will offer some welcome relief to retirees, many of whom have been struggling all year to keep up with the rising cost of living.
But there are two twists.
The first is that the adjustments come effectively a year in arrears: You will get a benefit bump in 2023 to account for a rise in prices that took place between 2021-2022, and was already hitting your budget earlier this year.
The second is that inflation will push even more retirees into the unhappy situation where their benefits are taxed (or, more accurately, double taxed). Congress introduced the taxation of Social Security benefits in 1984, but cleverly declined to index the thresholds to inflation. A tax that was supposed to hit only the highest 10% of recipients now hits about half, and will in due course, hit most.