If you’re a retiree living on a fixed income, your monthly check can’t keep up with the rising costs of living. So to help you maintain purchasing power, the Social Security Administration (SSA) raises Social Security benefit amounts each year via a cost of living adjustment (COLA).
While the SSA won’t announce its official COLA rate until mid-October — and the rate won’t apply until your January 2023 payment — other groups have already made predictions based on current inflation data.
Nonprofits like The Senior Citizens League (TSCL) estimate that 2023’s COLA will be a record-breaking increase of up to 10.1%. At that rate, the average retiree receiving Social Security benefits could get as much as an extra $159 per month starting next year.
But is that additional cash enough to outweigh ballooning prices? Let’s dive into what you can expect from 2023’s COLA and explore strategies to cope with inflation on a fixed income next year.
What factors affect the cost of living?
The cost of living is the amount of money you have to spend on essential, everyday purchases to live in your area. Expenses in the following categories are typically considered part of your cost of living:
- Housing (rent and mortgage payments)
- Health care
According to 2021 data from the Bureau of Labor Statistics (BLS), the average cost of living in America is a little over $62,000 per household, or $5,100 or so a month. (That number has definitely increased in the last year, though we won’t know by exactly how much until the BLS’s next Consumer Expenditure Survey.)
Of course, your cost of living varies by where in the country you live. For instance, essential purchases cost nearly twice as much in Hawaii as in the continental U.S.
In terms of housing, the Hawaiian islands have limited land, so real estate is more expensive there than in a large continental state like New Mexico. And since Hawaii has to import most of its goods from the mainland, food costs more than in farm-heavy midwestern states like Kansas.
Regardless of where you live in the country, though, your Social Security payment should increase by $120 to $159, according to the most recent estimates from TSCL.
How does the SSA calculate its cost of living adjustment?
The SSA calculates the year’s COLA largely based on a subset of the Consumer Price Index (CPI), which collects data on how much consumers spend on clothes, food, and other necessary expenses.
In October, the SSA will compare CPI data from the third quarter of 2022 with the third quarter of 2021. The difference between how much necessities cost today compared to a year ago is one key factor in how much (or how little) the SSA decides to increase your Social Security check at the start of 2023.
While The Senior Citizen’s League report predicts this year’s COLA will be 9% or higher, the SSA won’t release its official COLA until after the third quarter ends on September 30. The eventual adjustment will take effect in January 2023 and depends quite a bit on September’s CPI data.
Will this year’s COLA be high enough to keep up with inflation?
Unfortunately, even though the CPI is the main metric the SSA uses to measure inflation, it doesn’t always offer the most up-to-date or accurate information. Most problematically, it gathers data only from businesses with physical storefronts, which means it’s definitionally behind the times.
As a result, the CPI doesn’t necessarily reflect the reality of on-the-ground inflation — which means COLA increases based on the CPI are rarely as high as they need to be.
Plus, the annual adjustment is meant to match the inflation rate at the start of the year. It doesn’t consider potential changes over the next 12 months.
If you were receiving Social Security benefits when the 5.9% adjustment came through in January 2022, you already know the start-of-year adjustment wasn’t nearly high enough to cope with the upcoming inflation spike.
How can you maintain your cost of living on a fixed budget?
Whether 2023’s COLA ends up at the current low-end estimate of 9.3% or the high-end estimate of 10.1%, the extra money will certainly help extend your buying power. But on its own, it won’t keep your wallet in step with increased prices. These tips can help ensure your higher Social Security check goes as far as possible next year.
Do some digging to find better deals
Old habits die hard, including long-held spending habits. Maybe you’ve shopped at the same chain grocery store for years because you’re used to it, or perhaps you’ve stuck with your car insurance provider for so long that you simply assume you’re getting a good rate.
But many seniors miss out on money when they settle for what’s familiar instead of researching better options.
For instance, switching car insurance providers could save you as much as $500 a year — money you could get back this year if you take the time to compare options. Or you could save money by buying certain items from Costco instead of Amazon (or vice versa).
This type of intensive budgeting requires you to dig into the details, so it takes a good deal of time (though not money — tools like car insurance calculators are free).
But if you can dedicate enough time to finding deals on every expense, from groceries to clothes to prescriptions, you’ll have a head start on making the most of 2023’s increased Social Security check.
Forgo paid activities for free ones
Going to the movies, seeing a concert, or traveling for vacation are all enjoyable ways to spend your time, but they all have a high price tag. While you don’t necessarily need to swap out all your paid fun for free options, it’s worth thinking through which activities you can live without until inflation levels out.
Love the movie theater? Find out where the nearest dollar theater or cheap drive-in is, or else switch your weekly movie night to $5 Tuesday or a cheaper Saturday matinee.
Obsessed with the great outdoors? Check Google Maps to find every local park in your area and visit them in turn. (Don’t forget to take advantage of perks like the National Park Service Senior Pass.)
Supplement your Social Security check
In June 2022, the SSA reported the average monthly Social Security check totaled just over $1,540 a month. That number is obviously much lower than any cost-of-living measurement (one key reason to learn how to save for retirement), so finding ways to supplement your Social Security benefits can give you a little financial breathing room.
In the gig economy, there’s a part-time side hustle for everyone. Earn pocket money by simply filling out surveys, testing products, or delivering for DoorDash a few times a day. Up your passive income by offering storage space through Neighbor.com or ShareMySpace. Sell some items you’ve been meaning to get rid of on Facebook Marketplace.
Whatever you can do to claim some extra cash, go for it — every penny counts.
Next year, you can make the most of your extra $120-plus from the SSA by assessing your spending habits, capitalizing on deals, and earning money with the occasional side gig.
Together with your increased Social Security payment, strategies like these will help you retain your purchasing power in tricky financial times.
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