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Amid record inflation, stretching Social Security benefit checks has become more difficult in 2022.
Even as 5.9% cost of living adjustment came into effect in January, the record annual increase in benefits has still not matched, according to new research from the Senior Citizens League.
The average retiree benefit rose from $1,564 in 2021 to $1,656.30 in 2022, a monthly increase of $92.30, according to the nonpartisan seniors group. Yet every month this year, a bigger increase was needed to keep up with soaring costs due to inflation, the research found.
The average retiree benefit was lower by an average of $42.35 per month, or 46%, according to the research. During the year, this amounted to $508.20.
Social Security’s annual cost of living adjustment, or COLA, is based on the Consumer Price Index for Urban and Office Workers, or CPI-W. The annual change is calculated based on the average of the third quarter index, which is compared to the average of the third quarter of the previous year.
The 5.9% annual increase for 2022 was the biggest benefit increase in 40 years when it was announced in October 2021.
In January, recipients can expect to see a even higher increase — 8.7% — which will surpass last year’s record.
Yet, as inflation overtook the COLA for 2022, households aged 65 and over found it harder to pay for everyday items.
“Even the simplest foods are harder…to afford”
The fastest growing cost is heating oil, which jumped 68% from October 2021 to October 2022, according to the Senior Citizens League.
This was followed by air fares, which climbed 42.9% during this period; flours and prepared mixes up 24.6%; health insurance, 20.6%; and natural gas, 20%.
Other key categories that saw strong price increases included oil changes and coolant, canned fruits and vegetables, soups, turkey and pet food.
“Even the simplest foods are harder to afford,” said Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League.
For low-income retirees who have spent their retirement savings, absorbing these higher costs can be particularly difficult, she noted.
Medicare Part B also saw larger increases in 2022, with standard premiums up 14.5% at $170.10 per month. These monthly premiums are usually deducted directly from Social Security checks.
As 2023 approaches, Social Security beneficiaries will be poised to see more of the record 8.7% increase taking effect, as standard Medicare Part B premiums 3% drop at $164.90.
“The good news…is that people are realizing 100% of the 8.7% increase,” said David Freitag, financial planning consultant and social security expert at MassMutual, recently told CNBC.
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the average retiree benefit will increase by $146 per month, from $1,681 in 2022 to $1,827 in 2023, according to the Social Security Administration.
The agency is currently sending statements to beneficiaries which include the exact amounts of their increases for next year.
“The COLA is really going to increase their benefits by a record amount,” Johnson said.
“It’s the biggest that most retirees alive today have ever received,” she said.
How far this extra money will go next year will depend on how inflation develops in the coming months.
If higher prices decline, that could indicate a lower cost-of-living adjustment for 2024, Johnson said. An exact measure will be based on CPI-W data for the third quarter of next year.