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The Social Security Administration’s projected 2023 cost-of-living adjustment (COLA) is projected to hit 11.4% next year if the current rate of inflation continues, according to new analysis from the Committee for a Responsible Federal Budget (CRFB).
Marc Coldwein, the CRFB’s senior policy director Tweeted this week: “HOLY COLY—with no more inflation for the next three months, the Social Security COLA would be 9% next year. On our current course it will be 11.4 percent.”
Using the committee’s 11.4% assumption, average retiree benefits could see an increase of $190 a month or nearly $2,300 a year.
The official calculation by the Social Security Administration, made in October, uses the third quarter data measuring the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
The 2022 SSA Trustees Report, released 6 months ago assumed a 3.8% COLA. That was clearly wrong, as inflation has continued to dramatically impact the price of everything we purchase.
The dramatic increase in Social Security payments has also increased awareness of the Social Security funding shortfall. And legislators are being forced to consider how they plan to fix the coming train wreck.
Peter DeFazio, a Congressman from Oregon, and Bernie Sanders recently introduced the Social Security Expansion Act. The Social Security Expansion Act proposes to pay retirees an additional $2,400 in annual benefits by mandating that payroll taxes be applied on all income above $250,000 a year, including capital gains. The social security tax is currently phased out when wages rise above $147,000, and is only subject to earned income. Capital gains are currently subject to a 3.8% surtax for anyone with income above $250,000. Under the Social Security Expansion Act, this tax would increase to 12.4%.
The Social Security Administration announced last month that it will not have the resources to pay out full benefits in 13 years if Congress fails to fix the funding problem. To read more, see our piece "Is Social Security Going to Run out of Money in 2035?". Record inflation will only push this funding problem to occur even sooner.
While the Social Security Expansion Act may not be the final piece of legislation to pass through Congress, tax increases will be necessary to help the underfunded Social Security Trust Fund. Having a financial advisor who can help you proactively navigate your lifetime tax liability will continue to be one of the cornerstones of a successful financial plan.
To speak with an advisor about your future tax liability, schedule a meeting below.
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