Social Security recipients will begin receiving an increase in monthly benefits of $140 starting in January due to an 8.7% cost-of-living adjustment for 2023. Currently, Bank of America Institute study shows that older generations who get Social Security income are spending more quickly.
As reported by Bank of America Institute, household spending climbed between 4% and 6% for people who were born in 1964 or earlier for the week ending February 18 compared to 2% for all other age groups.
The institute is a think tank within the bank that assesses consumer trends using the company’s exclusive internal data. According to the company, Bank of America provides services to around 67 million customers or roughly one in every two families.
Data from Bank of America’s debit and credit cards revealed that throughout the majority of 2022, older generations spent money at a similar rate to younger generations. Nonetheless, the study found that since late November, expenditure growth among older groups has outpaced the average.
The Social Security cost-of-living adjustment, or COLA, may have caused older generations to increase their spending growth by up to 3 percentage points, according to the Bank of America Institute.
The Social Security COLA for 2023 represented the largest increase in beneficiaries’ monthly benefits in the previous forty years.
Payments from Social Security or Supplemental Security Income are received by over 70 million beneficiaries. Retirees as well as those with disabilities and the beneficiaries’ families are recipients.
While the Social Security COLA for this year may help beneficiaries manage their finances, the boost for the following year could not be as significant. Here are three essential details.
1. Inflation Extremely Affects Retirees
Although Social Security benefits are indexed for inflation, there is a delay before the adjustments become effective.
Despite the 5.9% COLA adjustment for 2022, government inflation data indicated that costs increased more quickly for the majority of last year. With a 5.8% increase over the previous 12 months for the consumer price index for urban wage earners and clerical employees, or CPI-W, the 8.7% COLA for 2023 is now exceeding current inflation. The CPI-W is used by the Social Security Administration to determine the yearly COLA adjustment.
According to the institute, older generations cut back on their spending during the pandemic more than other generations did. Tinsley stated that households with low incomes and older generations have been disproportionately affected by rising prices, such as those for food, rent, or electricity bills.
2. Social Security COLA for 2024 May be Less
The league claims that due to slowing inflation, the Social Security COLA for 2024 will probably be considerably less than this year’s 8.7%.
The Social Security Administration determines the yearly cost-of-living adjustment by comparing the average for the third quarter of the current year to the average for the third quarter of the preceding year to determine the percentage increase in the CPI-W.
Johnson pointed out that a COLA in 2024 would indicate higher inflation than in 2019. Instead, she suggested, there might be a very small COLA or even no COLA at all for the upcoming year.
3. 2023 Social Security COLA may Affect Inflation
The current 8.7% Social Security COLA has increased spending, which could make efforts to reduce inflation more difficult.
In the face of rising inflation, Peter C. Earle, an economist at the American Institute for Economic Research, recently observed that a more generous Social Security COLA—and equivalent changes to pensions—encourages people to revert to previous spending patterns.
That happens at a time when the Federal Reserve is attempting to contain inflation by boosting interest rates. When the central bank meets this week, it is anticipated to raise interest rates by a quarter point.