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| The Social Security COLA Will Ease the Sting of Inflation | The Social Security COLA Will Ease the Sting of Inflation |
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| Want to know more about the Social Security cost-of-living adjustment? Personal finance reporter Tara Siegel Bernard will answer some of your questions in the comments of this article. | Want to know more about the Social Security cost-of-living adjustment? Personal finance reporter Tara Siegel Bernard will answer some of your questions in the comments of this article. |
| About 70 million Americans collecting Social Security will receive an 8.7 percent bump in their benefits next year, the largest raise since 1981, the Social Security Administration said on Thursday. That will provide some measure of relief to retirees struggling with soaring prices on everyday necessities, from groceries to housing. | |
| Prices have remained stubbornly high over the past year, even as federal policymakers have taken aggressive measures to rein them in. Social Security is designed to keep pace with inflation through its cost-of-living adjustment, or COLA, which is calculated annually. Starting in January, the increase will lift the typical monthly retiree benefit by $140 to $1,827. That follows a 5.9 percent increase for 2022, a four-decade high at the time. | |
| “That is breathing room,” said Gloria Hinojos, a 75-year-old retiree in Hacienda Heights, Calif., who stands to receive roughly $182 more each month, and relies largely on her benefit check to cover her monthly expenses. That includes rent of roughly $1,200 to $1,350 each month, which pays for the land her mobile home sits on, and includes utilities. | “That is breathing room,” said Gloria Hinojos, a 75-year-old retiree in Hacienda Heights, Calif., who stands to receive roughly $182 more each month, and relies largely on her benefit check to cover her monthly expenses. That includes rent of roughly $1,200 to $1,350 each month, which pays for the land her mobile home sits on, and includes utilities. |
| The increase — which will help about 52.5 million people 65 and older and 12 million people with disabilities, among others — is based on the Labor Department’s latest report on the Consumer Price Index, released on Thursday, which said prices increased 8.2 percent over the year through September. | |
| The coronavirus pandemic created conditions that led to the fastest pace of inflation in decades. Disruptions in the supply chain emerged just as consumers, flush with stimulus payments, were demanding more goods, leading to price increases. That dynamic worsened this year when Russia invaded Ukraine, pushing up the cost of fuel and food. | |
| Sustained price increases are particularly painful for retirees, many of whom rely on Social Security for a significant share of their household income. | Sustained price increases are particularly painful for retirees, many of whom rely on Social Security for a significant share of their household income. |
| For Ted Padgett, 81, and his wife, Barbara, 78, it’s their only source of income. Both worked at a furniture manufacturer near their home in Galax, Va., for decades. Mr. Padgett said he had assembled furniture and done maintenance work, while she worked on the furniture’s final touches, like spraying on finishes. | |
| Together, their checks amount to roughly $1,900 a month. But after they pay for Medicare, their supplemental health coverage and rent, there’s only about $700 left to cover groceries and everything else. Two months ago, the couple started to visit a food bank. They also hunt for deer, which provides many meals during the winter, from tenderloin to burgers. | |
| “It’s rough,” Mr. Padgett said. “We used to go and buy what you needed and it would be maybe $60. Now, you go buy the same thing and it would be $140. It really went up.” | |
| Many retirees depend almost entirely on Social Security checks. But even retired households that were 65 and older and squarely in the middle of the income distribution, with an annual average of about $41,000, relied on Social Security for a little more than half their income in 2019, according to calculations by the Center for Retirement Research, using data from the Survey of Consumer Finances. (Other analyses found that people may be less reliant.) | |
| Social Security also helps lift millions of older Americans above the poverty line, which stood at $12,880 for an individual as of 2021. A greater number of people 65 and older — about 10 percent — slipped below last year, up from 8.9 percent in 2020. It was the first increase since 2016, according to the latest Census Bureau data. One likely culprit: More older people, particularly those with lower incomes, were forced into an early retirement because of the pandemic, experts said. | |
| “A significant increase in the COLA is most welcome, but it doesn’t solve the increase in poverty we saw on the 65-plus numbers,” said Ramsey Alwin, president and chief executive of the National Council on Aging, a nonprofit advocacy group for older adults. “To us, it’s a warning bell. These numbers will increase in the future unless we shore up the programs we need to age well.” | “A significant increase in the COLA is most welcome, but it doesn’t solve the increase in poverty we saw on the 65-plus numbers,” said Ramsey Alwin, president and chief executive of the National Council on Aging, a nonprofit advocacy group for older adults. “To us, it’s a warning bell. These numbers will increase in the future unless we shore up the programs we need to age well.” |
| Though the financial health of Social Security improved slightly in 2021 from the previous year thanks to a rebounding economy — when more people are working, the program collects more taxes on wages — it faces a longer-term shortfall. The trust fund that pays retiree benefits will be depleted in 2034, at which time its reserves will run down. When that happens, incoming tax revenue will be enough to cover only 77 percent of all scheduled benefits. If no action is taken, all benefits will shrink by 23 percent. | Though the financial health of Social Security improved slightly in 2021 from the previous year thanks to a rebounding economy — when more people are working, the program collects more taxes on wages — it faces a longer-term shortfall. The trust fund that pays retiree benefits will be depleted in 2034, at which time its reserves will run down. When that happens, incoming tax revenue will be enough to cover only 77 percent of all scheduled benefits. If no action is taken, all benefits will shrink by 23 percent. |
| Demographic shifts have led to that imbalance. More baby boomers are collecting payments. Retirees are living longer. At the same time, a declining birthrate has produced fewer workers contributing to payroll taxes — the primary source of Social Security funds. The payroll tax is split between employers and employees, who each paid 6.2 percent of wages, up to a taxable maximum of $147,000, in 2022. Next year, up to $160,200 of earnings will be subject to these taxes. | Demographic shifts have led to that imbalance. More baby boomers are collecting payments. Retirees are living longer. At the same time, a declining birthrate has produced fewer workers contributing to payroll taxes — the primary source of Social Security funds. The payroll tax is split between employers and employees, who each paid 6.2 percent of wages, up to a taxable maximum of $147,000, in 2022. Next year, up to $160,200 of earnings will be subject to these taxes. |
| There are two ways to close the funding gap: raising payroll taxes or trimming benefits, both of which require congressional approval. But so far, legislators have done little to address the problem. | There are two ways to close the funding gap: raising payroll taxes or trimming benefits, both of which require congressional approval. But so far, legislators have done little to address the problem. |
| Signed into law by Franklin D. Roosevelt in 1935, Social Security was created to mitigate the risks for the rising number of wage earners in an increasingly industrialized economy, as fewer people lived off the land with their extended families into old age. He intended for it to be not the sole source of retiree income but a foundation to build upon. Over time, the social insurance program became known as one leg of a “three-legged stool” of retirement, with pensions and savings the other two. | |
| But as pensions faded away, replaced largely by 401(k) and other do-it-yourself savings plans, more responsibility shifted to workers. For some, life circumstances — whether job disruptions or medical issues — interrupt steady retirement savings. For others, income may not keep pace with rising costs, leaving them less to squirrel away. And longer life spans — in 2021, men age 65 are projected to live another 19 years and women nearly 22 years — increases the risk of outliving one’s savings. | But as pensions faded away, replaced largely by 401(k) and other do-it-yourself savings plans, more responsibility shifted to workers. For some, life circumstances — whether job disruptions or medical issues — interrupt steady retirement savings. For others, income may not keep pace with rising costs, leaving them less to squirrel away. And longer life spans — in 2021, men age 65 are projected to live another 19 years and women nearly 22 years — increases the risk of outliving one’s savings. |
| Social Security, which isn’t subject to market gyrations and provides an inflation-adjusted income stream for life, has been a constant. | Social Security, which isn’t subject to market gyrations and provides an inflation-adjusted income stream for life, has been a constant. |
| “It is the backbone of our retirement system,” said Alicia Munnell, director of the Center for Retirement Research. “It is the base upon which everyone relies or builds. There is no question about that.” | “It is the backbone of our retirement system,” said Alicia Munnell, director of the Center for Retirement Research. “It is the base upon which everyone relies or builds. There is no question about that.” |
| For Tish Leon, 71, a larger Social Security check will help her keep ahead of her rent, which rose 5 percent last year. (Ms. Leon owns a mobile home, but not the land.) It will also allow her to eventually save enough money to make home improvements. Her current check of nearly $2,100 accounts for roughly 80 percent of her income. She withdraws another $500 monthly from her own retirement savings, which she accumulated when working as an office manager at nonprofits. | For Tish Leon, 71, a larger Social Security check will help her keep ahead of her rent, which rose 5 percent last year. (Ms. Leon owns a mobile home, but not the land.) It will also allow her to eventually save enough money to make home improvements. Her current check of nearly $2,100 accounts for roughly 80 percent of her income. She withdraws another $500 monthly from her own retirement savings, which she accumulated when working as an office manager at nonprofits. |
| “The price of living is really high,” said Ms. Leon, who lives in Lakeside, Calif. She has made some changes, like limiting her driving to keep her gas costs down. “When I do drive, I try to do as much as possible when I am out.” | “The price of living is really high,” said Ms. Leon, who lives in Lakeside, Calif. She has made some changes, like limiting her driving to keep her gas costs down. “When I do drive, I try to do as much as possible when I am out.” |
| This year, retirees will also get to keep more of the annual bump to their Social Security check. Last year, Medicare beneficiaries had to absorb a big increase in their premiums, which are deducted from their checks. But this year, for the first time in more than a decade, premiums will decline. The standard monthly premium for Medicare Part B — which covers doctor visits and outpatient hospital services — will be $164.90 in 2023, or $5.20 less than it is this year, according to the Centers for Medicare & Medicaid Services. | This year, retirees will also get to keep more of the annual bump to their Social Security check. Last year, Medicare beneficiaries had to absorb a big increase in their premiums, which are deducted from their checks. But this year, for the first time in more than a decade, premiums will decline. The standard monthly premium for Medicare Part B — which covers doctor visits and outpatient hospital services — will be $164.90 in 2023, or $5.20 less than it is this year, according to the Centers for Medicare & Medicaid Services. |
| Ms. Hinojos, the California retiree, had worked since she was 15. She was with her last employer, mostly in accounting-related jobs at a private college, for nearly four decades. | |
| But it was challenging to put aside a meaningful amount for retirement while raising her son as a single mother. She had saved some money in a 401(k), but she said two market crashes had diminished her savings. She also withdrew money at another point to try to save her house, which had fallen into foreclosure — but she lost it anyway. | |
| “That ended up throwing good money after bad,” said Ms. Hinojos, who tries to keep her grocery bill under $200 a month and received some savings from a relative, which she has earmarked for medical care. “A lot of my 401(k) money got thrown out as a result.” | “That ended up throwing good money after bad,” said Ms. Hinojos, who tries to keep her grocery bill under $200 a month and received some savings from a relative, which she has earmarked for medical care. “A lot of my 401(k) money got thrown out as a result.” |
| Social Security has been a stabilizing force. “With all of my ups and downs,” Ms. Hinojos said, “I don’t know what I would do without it.” | Social Security has been a stabilizing force. “With all of my ups and downs,” Ms. Hinojos said, “I don’t know what I would do without it.” |