Will the bump in Social Security benefits be enough to offset inflation?

For older Americans and retirees, there was some helpful news to accompany the latest inflation report. Americans taking Social Security will see an 8.7% bump in their benefits. That's starting in January thanks to the 2023 cost of living adjustment, known as the Social Security COLA. But how much will it help? Economics Correspondent Paul Solman breaks it down.

Read the Full Transcript

  • Amna Nawaz:

    And, for older Americans and retirees, there was some helpful news to accompany that latest inflation report.

    Americans receiving Social Security will see a sizable bump in their benefits, 8.7 percent. That is starting in January, thanks to the 2023 cost of living adjustment known as the Social Security COLA. That comes as Medicare premiums dip just a bit too. But how much will it help?

    Economics correspondent Paul Solman breaks that down.

    The increase will be the largest benefit adjustment in 40 years and should actually cover seniors' real cost hikes, says retirement expert Anqi Chen.

  • Anqi Chen, Center For Retirement Research, Boston College:

    So, it should, because the COLA is based on the CPI-W, which is the inflation measure, from the third quarter of this year. It tracks the actual inflation for urban wage earners.

  • Paul Solman:

    Unless the inflation rate rises above 8.7 percent next year, jacking up the CPI-W, that is.

    Today's increase will go to more than 70 million Americans, including 52 million above age 65, an average increase of around $1,700 a year, more than $4,000 for those getting Social Security's maximum by waiting until age 70.

    And then there's a reduction in the Medicare premium too. And that, of course, comes out of your Social Security check if you're taking Social Security.

  • Anqi Chen:

    Yes, so Medicare is taken out of your Social Security check. Last year, there was a big increase in the Medicare premium, with the expectation that the Alzheimer's drug Aduhelm would be approved. And that would have been a big expense for Medicare.

  • Paul Solman:

    It will actually go down compared to last year?

  • Anqi Chen:

    Yes, that's correct.

  • Paul Solman:

    And some non-seniors get the COVID benefit too, right?

  • Anqi Chen:

    So non-seniors who are on Social Security, because there are survivors or children, would get benefits, and they would receive the COLA.

  • Paul Solman:

    So, who doesn't benefit from the Social Security cost of living adjustment?

  • Jennifer Molinsky, Harvard University:

    I don't think that there are folks who won't benefit. I think it's a question of the extent of the benefit.

  • Paul Solman:

    For renters, for instance, says housing researcher Jennifer Molinsky.

  • Jennifer Molinsky:

    They have less control over their housing costs. And they — their rents have been growing quite spectacularly in the last few years. So, will it help?

    Yes, it'll chip away at that rise in rents. But will it solve their housing problems? No.

  • Paul Solman:

    How does this affect renters?

  • Jennifer Molinsky:

    Renters tend to have lower incomes and Social Security makes up a bigger share of their income. So, nationally, last year, asking rents were up 11.6 percent from the first quarter of 2021 to 2022.

    But, in some places, particularly areas of the West and South, prices rose more than 20 percent and rents are still growing. So, in 2021, the cost of living increase for Social Security was 5.9 percent.

  • Paul Solman:

    Even more concerning, though, says Molinsky, is the widening income gap.

  • Jennifer Molinsky:

    When you think about low-income renters, who are already reliant on Social Security to a greater degree than their higher-income peers, this is a big concern.

  • Paul Solman:

    And for older Americans, there's the difference between single-family households because of widows and widowers compared to not-so-old Americans.

  • Jennifer Molinsky:

    Right. So more older adults tend to live alone. The rate reaches into the high 57, 58 percent among those who are 80 and older and increases with age.

  • Paul Solman:

    What about racial disparities?

  • Jennifer Molinsky:

    There are vast homeownership gaps in this country. The gap between Black and white homeownership is at a 30-year high for older people.

    So, more people of color, more older households of color are renters and more likely to have lower incomes and to be reliant on Social Security, but, unfortunately, to be also vulnerable to rising rents and that are outpacing the cost of living increases.

  • Paul Solman:

    Despite the gaps, though, Social Security's cost of living adjustment will provide serious protection against inflation to tens of millions of us.

    And, in the end, the COLA supports a suggestion I helped push as co-author of a Social Security guidebook some years ago: Wait until age 70 to take your benefit, if you can possibly afford to, as that book's main author, Larry Kotlikoff, convinced me.

  • Larry Kotlikoff, Boston University:

    Your big problem in retirement is outliving your savings.

    So, if you wait until 70, as opposed to taking benefits as early as possible, at 62, your benefit is going to start 76 percent higher adjusted for inflation. So, if other things are taking away your real resources through inflation, if inflation is wiping you out otherwise, you will have this secure real income that's higher and will continue until you die, which could be 100.

  • Paul Solman:

    So, Social Security is insurance. Still, I was skeptical when Larry first told me this.

    But, if I die early, I will leave money on the table because there were benefits I could have taken, but didn't, right?

  • Larry Kotlikoff:

    Dying early is not a pro because you're not going to regret anything when you're dead.

    The real concern is living 80, 90, 100, and running out of money.

  • Paul Solman:

    And speaking of money and a potentially patient Grim Reaper, today's benefit bump will materialize in Social Security checks starting January 1.

    For the "PBS NewsHour," Paul Solman.

Listen to this Segment