Buried beneath the hotter-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) data hitting the news October 12 and 13, the Social Security Administration released their annual increase for those currently collecting. The adjustment for 2023? 8.70%. That is the largest cost of living adjustment (COLA) since 1981, when the 10 Year Treasury topped out 15.84% and 30 Year Fixed Mortgages peaked at 18.63%. Not to give away my age, but let’s just say I wasn’t old enough to have experienced it for myself.

With the word “inflation” being the industry buzz word for 2022, what does it mean for those collecting fixed payments from sources like Social Security or Military Pension benefits? Quite a bit actually…

When we run the numbers in our planning software, we use an average rate of 2.34% for adjustments in cost of living, including Social Security. Add another 6.36% to our projections in inflation and it changes the graph significantly. Now, I understand that the COLA offsets inflation, so there is technically no “net benefit” to collectors of Social Security and other inflation-pegged benefits, but think of what happens once inflation comes back from
the stratosphere? Your Social Security payment will never get a negative cost of living adjustment. Once the 8.7% bump occurs, it stays there forever and sets a new watermark on which to adjust the following years.

While those collecting Social Security may feel squeezed in ’22, there is a strong probability that this year’s COLA will create some marginable positive effect for individuals in 2023 as inflation cools off.

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