Social Security Increase Might Not Be Enough to Cover Rising Costs: Survey

A Social Security card sits alongside checks from the U.S. Treasury in Washington on Oct. 14, 2021. (Kevin Dietsch/Getty Images)

A recent survey found most of the older generations think that the cost-of-living adjustments (COLA) made to their Social Security benefits won’t keep pace with inflation and rising costs.

At the start of this year, Social Security beneficiaries received an 8.7 percent increase in their monthly checks, the largest one since an 11.2 percent increase in 1981. The 8.7 percent jump boosted the average monthly benefit by about $146.

The Social Security cost of living increase is meant to ensure benefits keep pace with inflation. In general, the cost-of-living adjustment is based on consumer price index numbers, so as costs rise, so does COLA.

According to a Feb. 14 survey (pdf) from The Senior Citizens League (TSCL), 54 percent of respondents aren’t convinced that benefits will keep up with rising costs this year.

Presently, the 8.7 percent COLA for 2023 is outpacing current inflation with a 5.8 percent increase over the past 12 months for the consumer price index for urban wage earners and clerical workers, or CPI-W. The Social Security Administration uses the CPI-W to calculate the annual COLA adjustment.

According to policy analysts at TSCL, the CPI-W may not accurately reflect costs faced by retirees. Living expenses rise faster in certain areas and might not be included in the formula that determines the Social Security benefits COLA.

Taxes on Social Security

Additionally, Social Security recipients can owe taxes on up to 85 percent of their Social Security benefits when their “combined income” is greater than $25,000 for single filers or $32,000 for couples filing jointly. This threshold is not adjusted for inflation, unlike income tax brackets, according to TSCL.

Due to last year’s 5.9 percent COLA adjustment, 51 percent of beneficiaries said they are concerned they will owe taxes on their benefits. About one in five said it’s the first time they’ve earned over the threshold limit and potentially faced paying taxes on benefits.

“Had these income thresholds been adjusted since the tax on Social Security benefits became effective in 1984, the $25,000 level today would be about $73,000 and the $32,000 level would be about $93,200,” the Senior Citizens League said.

Further, the combined trust funds that pay benefits to retirees, survivors, and the disabled will be depleted by 2034, with 77 percent of benefits payable at that time, unless Congress addresses the program’s long-term funding shortfall, according to the most recent Social Security’s trustees’ report.