To perhaps little surprise to anyone that buys gasoline or purchases groceries on a regular basis, the latest data from the Consumer Price Index showed that the U.S. inflation rate hit 9.1% in June, a 41-year record high. At the same time, the CPI also affects cost of living adjustments, or COLAs, translating to a Social Security increase. While an immediate positive for beneficiaries, the move may raise longer-term concerns.
According to the Senior Citizens League – a non-partisan advocacy group that helps ensure the namesake demographic receives their full benefits – COLA increases must rise to 10.5% for 2023 to account for the inflation rate. Per a CNBC article, a “10.5% COLA would amount to a $175.10 increase to the average monthly retirement benefit of $1,668.”
As a side note, CNBC added that in the prior two months, the Senior Citizens League indicated that COLA for 2023 might be 8.6%. Interestingly, the Social Security Administration’s tool to calculate COLA annually shot up 9.8% over the past year.
Nothing is set in stone yet, so any Social Security increase remains a forecast. Moreover, the COLA could change depending on economic and monetary conditions. If inflation cools in the coming months as the White House expects, then the COLA increase could be 9.8%. If instead higher costs run hot, the adjustment could be 11.4%.
A Social Security Increase Is Good News for Now
The rumblings regarding inflation and its impact on a potential Social Security increase will feature varying degrees of perception. Obviously, those who are already retired will be looking forward to some meaningful relief.
However, those who still have many years left in the rat race might be smarting about the Social Security increase. For one thing, a bigger COLA could make social safety nets insolvent at a quicker pace than previously forecasted, according to the Committee for a Responsible Federal Budget. For instance, Social Security benefits for old age and for the survivors’ trust fund may become insolvent by 2034.
Prior to the inflationary wave, the committee projected the aforementioned fund’s insolvency to occur by 2035.
Another issue directly affects the beneficiaries themselves. Higher-income individuals may have to pay more for certain Medicare benefits. Lower-income households may suffer cuts to programs that are tied to income levels.
Finally, the increase in the real M2 money stock helped play a role in the current malaise. Therefore, a Social Security increase could heighten already problematic monetary dynamics.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
