Inflation relief for seniors on Social Security due to an annual cost-of-living adjustment to benefits, shows how rapidly prices have risen.
Most Americans are acutely aware of the effect of rising prices on the purchasing power of their incomes; how swift and steep the decline has been can be illustrated by the Social Security benefit increase seniors will receive for 2023.
Unlike wages, salaries, or other incomes, the purchasing power of seniors’ Social Security benefits are insulated from the effects of inflation due to the annual, automatic cost-of-living-adjustment (COLA).
The COLAs over the past two years show the swiftness with which the purchasing power of Americans’ incomes has fallen: at the fastest rate in more than 40 years. Indeed, in most of the previous years of the 21st century, the annual rate at which the Consumer Price Index (CPI) rose was much lower.
In 2019, Social Security recipients received a 2.8 percent benefit increase and in 2020, 1.6 percent. In 2021, they received a small, 1.3 percent COLA. This pittance boosted the average amount for an individual retiree in 2021 by a mere $20 per month, from $1,523 to $1,543.
COLAs are based on changes in the CPI for the 12 months preceding the calculation for the next year, so we can say that 2019 and 2020 were years of relative price stability, after which inflation returned with a vengeance.
The inflation increase for 2022—the highest in 40 years—was 5.9 percent, which raised the average monthly individual benefit by a significant $92 per month, from $1,565 to vengeance $1,657.
The COLA for 2023, announced by the Social Security Administration on October 13, is a whopping 8.7 percent, which will increase the benefit for an average individual retiree by $146 per month, from $1,681 to $1,827 in 2023.
Over two years, the average Social Security benefit rose $262 per month, or 14.3 percent. Or to put it another way, the level of prices is now 14.3 percent higher than two years ago.
Of course, prices are not rising uniformly, and seniors could spend more on things like health care, and less on fuel, for example, than individuals in other age groups. (Seniors enrolled in Medicare Part B, which pays for doctors’ visits, got some good news on that front. Based on Medicare spending in the fiscal year ending September 30, premiums for Part B will fall $5.20 a month in 2023, the Centers for Medicare and Medicaid Services announced on October 7.)
Americans under age 40 have never experienced such a precipitous decline in the purchasing power of their dollars. By comparison, the biggest percentage COLA ever in a single year was 14.3 percent in 1980, which was followed by an 11.2 percent rise in 1981.
Those COLAs were the capstone of the 1970s, which some economists dubbed “The Age of Inflation,” and others called “stagflation.” The return of an inflationary spiral of comparable magnitude does not bode well for the U.S. economy, or Americans’ pocketbooks.
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