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Social Security’s average retiree benefit will go up by $146 per month in 2023, thanks to a record 8.7% cost-of-living adjustment prompted by high inflation.
More than 70 million Social Security and Supplemental Security Income beneficiaries will benefit from those higher payments.
“It’s the highest COLA in 40 years,” said Andrew Biggs, senior fellow at the American Enterprise Institute. “It shows inflation is an issue again after having been dormant for literally decades.”
But those bigger benefit checks will cost the program, by some estimates, over $100 billion more in payouts. In 2022, the program will spend more than $1 trillion on benefits.
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In June, the annual trustees report projected Social Security’s trust funds will only be able to pay full benefits until 2035, at which point just 80% of promised payments will be payable.
The increased costs may prompt Social Security’s funds to reach insolvency at least one calendar year earlier than the trustees have projected, according to estimates by the Committee for a Responsible Federal Budget.
Other experts also have expressed concerns about how the increased benefit costs would affect the program.
“There is certainly a good chance that this could accelerate the depletion of Social Security’s primary trust fund,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
The trustees report released in June estimated a 3.8% COLA for 2023, based on data through February. What’s more, that same report also projected a COLA of around 2.5% for 2024.
“Given where inflation stands right now, unless things dramatically slow down, it seems likely that that’s going to be exceeded, as well,” Akabas said.
To be sure, other factors such as immigration and mortality will also factor into any new projections for the program, he said.
“I suspect that the next trustees report will not be good news,” Biggs said.
How slower wage growth is hurting the program
One key reason for that concern is wages, which have not been keeping pace with inflation. While inflation rose by 8.7% over the past year, real weekly wages fell by 3.8%, Biggs noted.
Consequently, the tax revenues that Social Security collects from workers will not go up as fast as the benefit payouts next year.
“That’s the way that inflation is really hurting the system right now,” Biggs said.
In 2023, Social Security payroll taxes will apply to $160,200 in wages, up from $147,000 this year.
While that marks a “substantially higher” increase than in years past, it still will not be enough to fully address rising prices, Biggs said.
The good news is that current beneficiaries will come out OK, as the higher COLA leads to bigger Social Security checks in the near term.
But going forward, it’s up to Congress to evaluate the program’s long-term future and decide what Social Security’s role in providing retirement income should be, Biggs said.
“When Congress starts thinking about that, then I think we’ll have a better chance of fixing the Social Security funding problem while keeping the system working very well for Americans,” Biggs said.