In the month of June, the Consumer Price Index (CPI)reportedinflation running at a whopping 9.1%, the fastest pace since 1981![i] The U.S. Federal Reserve reacted by increasing interest rates four timesby July, with possible future interest rate increasesas needed to curb inflation during the remainder of the year. Inflation and interest rate increases have wreaked havoc on the stock market, putting the U.S. into a debatable recession in 2022.

However, rising interest rates have also resulted in the highest Cost of Living Adjustment, or COLA benefit, we’ve seen in recent history.  COLA is an increase made to Social Security to counteract inflation, or help seniors keep their standard of living intact as the costs of goods and services rise in the economy. In 2022, Social Security beneficiaries received a 5.9% COLA increase, which is the highest increase we’ve seen in about 40 years. According to the Senior Citizens League, a nonpartisan senior group, the COLA adjustment for SSI in 2023 could be as high as 10.5%![ii]

The actual increase in 2023 is not set in stone just yet.  The government calculates the Social Security COLA factor utilizing the Consumer Price Index for Urban Wage Earners and Clerical Workers, referred to as CPI-W. The COLA calculation compares the average CPI-W for the third quarter of the prior year, to the average CPI-W for the third quarter of the current year. The percentage increase in COLA, or the increased SSI benefits, are effective as of the beginning of December, which is paid out one month in arrears, or paid in January of the following year.[iii]

Therefore, the actual increase in 2023 will depend on developing inflation data for the third quarter of 2022. If the Fed is successful in cooling inflation through interest rate increases, the Senior Citizens League estimates COLA could be 9.8%, instead.

However, it is important to remember that while SSI benefits may increase, so too could Medicare premiums, which are typically deducted directly from Social Security checks. In 2022, Medicare Part B premiums increased 14.5%. Higher income retirees may have to pay more for Medicare Part B (medical) and Part D (prescription drugs) if their AGI increases.  On the other hand, lower income retirees could possibly lose income related benefits like affordable housing if their AGI breaks notable thresholds.

Finances ought to get easier with age, as retirees aim to consolidate and simplify. Yet, outside variables often complicate matters, despite our best efforts to work within controllable factors. The good news is, seniors tend to keep a big-picture view,leaning onthe wisdom of past experiences. In other words, this too shall pass! However, should you need a financial sounding board, reach out to your Certified Financial Planner™ to ensure you’re still on course for a sound financial retirement.

The opinions expressed above are solely those of Kondo Wealth Advisors, Inc., (626-449-7783 info@kondowealthadvisors.com) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.

[i]https://www.bls.gov/news.release/cpi.t01.htm

[ii]https://seniorsleague.org/issues/cola/

[iii]https://www.ssa.gov/cola/