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The average Social Security retiree benefit will increase by $146 a month in 2023, thanks to a record 8.7% cost of living adjustment caused by high inflation.
More than 70 million Social Security and Supplemental Security Income recipients will benefit from these higher payments.
“This is the highest COLA in 40 years,” said Andrew Biggs, senior fellow at the American Enterprise Institute. “It shows that inflation is again a problem after being dormant for decades.”
But those larger benefit checks will cost the program, by some estimates, more than $100 billion more in payments. In 2022, the program will spend more than $1 trillion on benefits.
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In June, the trustees’ annual report predicted that Social Security trust funds will only be able to pay full benefits until 2035, when only 80% of pledged payments will be due.
Rising costs may cause Social Security funds to reach insolvency at least a calendar year earlier than expected by administrators, according to estimates by the Committee for a Responsible Federal Budget.
Other experts have also expressed concerns about how rising benefit costs will affect the program.
“There is certainly a good chance that this could accelerate the depletion of the main Social Security trust fund,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
The trustees’ report released in June estimated a COLA of 3.8% for 2023, based on data through February. Additionally, that same report also forecast a COLA of around 2.5% for 2024.
“Given the current inflation picture, unless things slow down significantly, it seems likely that it will also be overtaken,” Akabas said.
Certainly, other factors such as immigration and mortality will also be factored into any new program projections, he said.
“I suspect the next report from the directors won’t be good news,” Biggs said.
How slowing wage growth hurts the program
One of the main reasons for this concern is wages, which have not kept pace with inflation. While inflation rose 8.7% over the past year, real weekly wages fell 3.8%, Biggs noted.
As a result, the tax revenue that Social Security collects from workers will not grow as fast as benefit payments next year.
“That’s how inflation is really hurting the system right now,” Biggs said.
In 2023, Social Security payroll taxes will apply to $160,200 in wages, up from $147,000 this year.
While that marks a “substantially higher” increase than years past, it still won’t be enough to fully address rising prices, Biggs said.
The good news is that current recipients will be fine, as the higher COLA leads to larger Social Security checks in the short term.
But going forward, it’s up to Congress to assess the long-term future of the program and decide what Social Security’s role should be in providing retirement income, Biggs said.
“When Congress starts thinking about this, I think we’ll have a better chance of solving the Social Security funding problem while keeping the system running smoothly for Americans,” Biggs said.