Are retirees set to lose out next year as inflation outpaces the Social Security increase? Many analysts believe so — here's what you can do about it

What is COLA?

Every year the Social Security Administration (SSA) makes a cost-of-living adjustment to the Social Security benefit. The adjustment is tied to inflation, specifically to the average inflation rates during the third quarter (July, August and September) of the current year, as compared to the prior year.

While the COLA adjustment can help Social Security recipients manage annual increases in living expenses, it's not guaranteed to outpace or even keep up with inflation. In 2018, the increase amounted to 2.8%, but that dropped down to 1.6% and 1.3% for 2019 and 2020. Record-breaking inflation drove the COLA up to 5.9% in 2021 and 8.7% in 2022. But with inflation receding (albeit slowly) analysts expect the adjustment to drop back closer to 2018's rate.

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How will the Social Security adjustment impact you?

Analysts project a 3% COLA increase for next year, but the Social Security Administration won't announce the official figure until October. For recipients, the adjustment will be reflected in the January 2024 benefit.

If there is indeed a 3% increase, TSCL says it will add just over $53 a month (or $644 a year) to the average benefit, which is currently $1,789 a month. By comparison, the 2022 adjustment of 8.7% added $147 a month.

Whatever the final amount, recipients should keep in mind that they may not pocket much. Medicare Part B premiums — which are automatically deducted from most beneficiaries’ Social Security — are projected to increase by roughly $10 a month. Additionally, some recipients have to pay income taxes on their Social Security benefit.

How can you deal with inflation?

Unfortunately, there's no easy solution for what retirees are facing. Some have dealt with the erosion of their spending power by going back to work. In a 2022 employment survey from Paychex, 62% of respondents said they’d come out of retirement, and money was the main reason.

Beyond returning to employment, there are some other ways you can adjust to the high cost of living:

• Downsize. Housing and auto insurance are currently two of the most inflation-prone expenses for consumers. Consider cutting your biggest costs by renting out a room and/or downsizing to a smaller home or car.
• Use meal planning. Food prices have increased 4.9% since July 2022. Reduce this expense by planning meals before you visit the grocery store, using coupons, buying in bulk and choosing generic brands.
• Fill up wisely. Save on gas by filling up your tank on Mondays and Tuesdays, when gas prices are lowest, or by using an app that helps you find the best local price.
• Apply for additional assistance. Check into other federal or state programs you may be eligible for, like the Supplemental Nutrition Assistance Program (SNAP) or Medicaid.
• Get professional support. Get free or low-cost help with budgeting and debt management from a certified, nonprofit credit counselor.
• Check up on your benefits. Check with the SSA to see if you or a family member is eligible for a benefit increase. Check to make sure your income records are correct, too, since they impact your benefit amount.

If you're approaching retirement age, you may want to rethink your plans. While you can begin collecting Social Security as early as age 62, delaying increases your benefit.

Pushing back retirement can also help you increase your average lifetime earnings, which can further increase your benefit. It can also give you extra time to earn the additional work credits you may need to qualify for Social Security.