Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. New York Times
More than 70 million Americans receiving Social Security benefits could see the largest annual cost-of-living increase in more than four decades in 2023, considering the government CPI inflation data.
The Social Security Administration will announce the formal 2023 figure around October 13, after the release of September CPI inflation data. However, the August CPI point to a Social Security cost-of-living adjustment, known as the COLA, of 8.7 percent, according to an estimate by the Senior Citizens League that lobbies for seniors and reported by The New York Times.
The COLA is calculated annually using a formula detailed in federal law. It uses one of the broadest government measures of inflation, known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI.
Social Security averages together the CPI figures during the third quarter of each year, and compares that with the previous year’s figure. For example, the 2023 COLA will be calculated by averaging together the CPI figures for the third quarter of 2022 and comparing that with the same averaged figures for 2021.
Rapid inflation typically results in trouble for equity stocks and the overall market. Financial risk assets have historically performed badly during periods of inflation, while tangible assets like real estate have held their value better.
References:
- https://www.nytimes.com/2022/09/14/business/social-security-cola-increase.html
- https://www.ssa.gov/
- https://www.whio.com/news/trending/social-security-boost-cost-of-living-increase-2023-pace-be-largest-since-1981/
Social Security is a program run by the federal government. The program works by using Social Security taxes paid into a trust fund to provide benefits to people who are eligible. Eligibility for Social Security retirement benefits starts at age 62 (the earliest you can receive them) to age 70 (when you hit your greatest amount).