On Thursday, the Social Security Administration announced that retirees will receive a cost-of-living adjustment of 8.7%, the highest boost since 1981. Retirees are celebrating this relief from rising prices, but it doesn’t bode well for Social Security’s long-term future.
Social Security originally did not adjust benefits to account for increases in the cost of living. But prompted by high inflation in the 1970s, Congress instituted automatic COLAs. These are calculated each year in autumn and implemented in January of the following year. So starting next year, the average monthly benefit check will rise by about $146. Total Social Security benefits, which cost nearly $1.3 trillion in 2022, which increase by more than $100 billion.
The 8.7% COLA itself isn’t an enormous problem so long as wages keep up. Social Security is a “pay as you go” program, meaning that the benefits paid out next year will come from payroll taxes collected from workers next year. So long as wages grow at the same rate as inflation, extra taxes collected from workers should be enough to cover the extra costs.
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