You don’t need to be a math whiz to understand that when you get a 5.9% raise, but inflation exceeds that, that you’re going to lose ground. That, in a nutshell, explains the problem that millions of Social Security recipients have encountered this year.
Essentials like food, heating oil and natural gas, for example, have gone up more this year—in some cases a lot more—than the 5.9% cost of living increase that Social Security recipients got this year. This has led many seniors to make difficult choices, particularly the large number who rely heavily, if not exclusively, on their monthly Social Security check to get by.
“ Many economists think the inflation rate could drop further over the next few months, giving seniors even more of a cushion. ”
This year’s 5.9% boost was the biggest in four decades, according to Social Security Administration data. But Mary Johnson of the Senior Citizens League (SCL), a Washington-based nonpartisan group, calculates that boots-on-the-ground inflation—the true price that seniors are paying for essentials—has been sharply higher. By her reckoning, this means that the average monthly check this year, about $ 1,656, has actually been eroded, in real terms, by about $ 42 per month. That might not sound huge, but again, if that one check is all you have, it can mean difficult choices.
“Many retirees have been forced to spend through savings far more quickly than planned,” Johnson says. “And those without savings, they have turned to food pantries and low income assistance programs in higher numbers.”
Indeed, recent surveys of adults aged 65 and up by the SCL found that 33% of participants reported applying for food stamps or visiting a food pantry over the past 12 months, versus 22% in 2020. It also found that 17% have applied for assistance with heating costs versus 10% in 2020.
So it has been a difficult year. But could Social Security recipients get a break in 2023? The numbers suggest that this could be a possibility, though such a break would likely prove to be short-lived.
Here’s why.
Inflation, which exceeded this year’s cost of living increase, was so high that 2023’s increase will be a whopping 8.7%, the highest since 1981.
But inflation, at least right now, is less than that. The federal government said Tuesday that the annual rate of inflation slowed to 7.1% in November from 7.7% in October. MarketWatch’s Jeffry Bartash noted that this was the lowest reading since the end of 2021 and well below inflation’s recent peak of 9.1%.
Based on November’s data, the current 7.1% rate of inflation is 1.6 percentage points below the rate of next year’s Social Security increase. If the data holds up, that would be wonderful news for seniors. And many economists think the inflation rate could drop further over the next few months, which could give seniors even more of a cushion. Knock on wood.
Johnson acknowledges that some seniors may see an improvement as (and if) the inflation rate continues to fall, but cautions that such a benefit is likely to be “very uneven.” She thinks two groups of people would benefit most: those who started taking benefits recently, particularly in 2022, and those who are over age 60 but have not begun taking benefits yet.
It’s important to remember that each year’s cost of living increase is designed to keep up with inflation, not exceed it. So any period—like last month—when inflation is below the rate of increase is likely to be short-lived. This observation is more than evident when you look at the long-term impact of inflation. Since the year 2000, Social Security benefits have eroded about 40% in real terms, Johnson estimates—devastating for anyone on a fixed income.