A Social Security Benefit Bump is Coming Soon
January 28, 2023
Inflation has hit the country hard. Far from “transitory” as initially described by Fed Chair Jerome Powell, our current bout of inflation continues to rage. For retirees, inflation can be especially difficult to deal with as many pensions are not adjusted for inflation. Further, one of the Fed’s primary tools for fighting inflation is raising interest rates, which has a negative impact on bond prices, as you may have seen on your investment account statements through last year.
That said, one of the primary goals of the Social Security system is to protect retirees from inflation. If you are already receiving Social Security benefits, beginning with your first check of 2023, you will see an 8.7% increase in your Social Security benefit. This increase is automatic each year and is based on a measure of the change in the Consumer Price Index.
For those of you who delayed Social Security benefits all the way to age 70, you are receiving a benefit that is approximately 77% higher than people with similar lifetime incomes who claimed at 62. During an inflationary period, this larger Social Security benefit produces larger inflation adjustments and reduces the need to draw more heavily on an investment portfolio that has likely been hurt in the current market.
For those of you who have not yet claimed benefits, don’t run out and claim for fear of losing out on the 8.7% increase. If you are at least 62 years old, you will get the adjustment, whether you claim now or wait to claim. I explained more on this idea in a recent article on CNBC. Instead, evaluate your options in light of your other income sources and retirement needs. A well structured retirement income plan most often includes at least one member of a household delaying benefits, along with a coordinated strategy for determining which accounts to use to supplement Social Security income. By blending withdrawals from different accounts, many retirees are able to save tens of thousands of dollars in taxes over their lifetimes and better protect against risks like market downturns, inflation and the untimely death of a member of the household.