The big Social Security increases are coming this month, but don’t get excited
JThis month, retirees across the country will receive a larger Social Security check. These larger checks will continue throughout the year and are the result of a 5.9% cost of living adjustment (COLA) – the largest in decades.
But while you may be happy to see more money deposited into your bank account by the Social Security Administration, don’t get too excited when that first check arrives and the amount appears to be larger on paper.
Here’s Why This Year’s Big Social Security Raise Isn’t Exciting
While it’s nice to get more money from the Social Security Administration, it’s not the actual amount of your benefit check that matters — it’s what you can buy with it that matters. And, unfortunately, despite the huge increase retirees are receiving, their purchasing power could very likely drop this year anyway.
See, Social Security cost-of-living adjustments are calculated based on changes in the Consumer Price Index for urban wage earners and office workers. (IPC-W). The increase is determined based on the amount of CPI-W data in July, August and September indicating an increase in prices compared to the same three months of the previous year.
When the 2022 COLA was calculated, it showed a 5.9% year-over-year price increase – hence the 5.9% increase seniors received. The only problem is that this calculation was based on a snapshot in time and inflation has been steadily rising since then.
More recently, a different price index – the Consumer price index for all urban consumers (CPI-U) – showed that there was a 6.8% rise in prices in November 2021 compared to the previous year. And that should rise to 7% in December.
If you get a 5.9% increase and prices have gone up 7%, your “benefit boost” actually doesn’t give you anything left to spend. Instead, you end up losing ground because your income is not growing as fast as prices are rising. You won’t be able to buy more – your money won’t stretch as far as it has in the past.
How to deal with rising inflation
It is undoubtedly bad news that your great Social security benefits bump is not an increase at all. But as long as you recognize this reality, you can take steps to lessen the effects of inflation and avoid the financial hardship that often results from battling rising prices on a fixed income.
Here are some of the different measures you can take to deal with inflation:
- Defer big purchases: If you don’t need to buy a car, do home improvement projects, or make other big purchases right now, don’t. Wait for the cost of goods and services to stabilize. This is especially important if the items you would purchase are affected by current supply chain crises or chip shortages.
- Make sure you have the right mix of investments: A strong investment portfolio can help you avoid losing ground since you can earn returns that hopefully beat inflation.
- Look for substitutions for high-priced items: If a particular type of food, such as beef, sees its prices rise rapidly, consider switching to less expensive foods, such as a plant-based diet.
- Reduce your energy costs: Insulating your home, adjusting your thermostat, and making sure you turn off lights and do high-powered activities during off-peak hours can help lower your energy costs.
By taking these steps, I hope you can stick to your budget — especially with your larger Social Security increase — even as prices continue to soar.
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