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Social Security COLA Estimate Set at 8.6% for 2023 as Inflation Rises in May

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The consumer price index data for May, released Friday, shows that prices have risen by 8.6% over the past 12 months before a seasonal adjustment, the largest since December 1981, and 1% from April to May. April statistics showed prices rose by 8.3% over 12 months and 0.3% from March.

Based on this data, the Senior Citizens League estimates the Social Security cost-of-living adjustment, or COLA, for 2023 could be 8.6%, as it predicted last month. This would be the highest COLA since 1981.

Mary Johnson, the league’s Social Security and Medicare policy analyst, bases monthly COLA estimates on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as the CPI-W. In May, the league pegged the 2023 COLA at 8.6%.

The annual Social Security Trustees Report, released last week, projected a COLA of 3.6% in 2023. But the program’s chief actuary, Steven Goss, said in a webinar by the Bipartisan Policy Center that the COLA could be much bigger if inflation continues apace.

“With the trends we’re seeing this year, it’s likely we’re going to have a COLA closer to 8% than 3.8% next year,” especially with higher wages mixed in, he said.

The Social Security Administration uses average inflation in the third quarter, based on the CPI-W, to calculate the benefit adjustment for the following year. The COLA was 5.9% in 2022.

The biggest price increases in May were in shelter, gasoline and food, according to the Bureau of Labor Statistics. After declining in April, the energy index rose 3.9% in May, with gasoline rising 4.1%. The food index rose 1.2%.

The index less food and energy rose 0.6% in in May, the same as the previous month. For the past 12 months, inflation on items less food and energy slowed slightly to 6.0%, versus 6.2% in May.

The BLS stated that over the past 12 months the energy index rose 34.6%, the largest increase since the period ending in September 2005. Gasoline rose 48.7% over that period. The food index increased 10.1% over the same period, the largest increase since the period ending in March 1981.

Johnson was cautious on whether the league’s COLA estimate could rise further.

“I’m carefully watching what will happen once we reach July-September,” she said in an email. Inflation eased up in that period last year, so “if inflation stays as high as it is, that could mean my estimate will creep up.”

 Solvency Debate

With various bills in Congress looking at how to prevent the Social Security Old-Age and Survivors Insurance Trust Fund from going bust in 2034, as the trustees currently expect, Goss made these observations last week:

  • People are waiting longer to claim Social Security. He noted that when people leave a job, they typically are finding “different work instead, better paying.”
  • One possible funding solution is “scrapping the cap,” or placing a payroll tax on all those with income above $400,000 per year. Another is having a tax such as the 3.8% investment tax to help fund it.
  • Another idea is to increase immigration. As Goss said, undocumented immigrants are not eligible for Social Security, but their children born in the United States are and grow into taxpaying citizens. Also, many immigrants who come over legally (or even undocumented) can become taxpaying citizens.

“Immigration is truly a positive [to Social Security],“ Goss said. “There’s been a dearth of immigration lately, but as the pandemic wanes, there will be more.”

Inflation Impact on Retirees

A survey by the SCL asked how inflation has affected retirees since last year. Many stated they are tapping into emergency savings to deal with higher prices. Here are the full results:

Older Americans were more likely over the past 12 months than they were a year earlier to spend emergency savings or apply for assistance with medical costs, according to The Senior Citizens League. They were more than twice as likely to have visited a food pantry or applied for SNAP benefits, or to have sought help with heating and cooling costs.