Last year’s red-hot inflation has considerably cooled, with the consumer price index (CPI) dropping from a 40-year high of 9.1 percent in June 2022 to 3 percent in June 2023. But that still means prices are going up, just not as fast as they were a year ago, leaving many retirees with lingering questions about whether their Social Security benefits will be able to keep up.
The short answer: probably. Social Security’s annual cost-of-living adjustment (COLA) has kept up well with inflation the past 20 years, according to the Center for Retirement Research at Boston College. And the 2022 spike in consumer prices produced an 8.7 percent COLA that went into effect in January, the largest annual raise in more than four decades.
Still, concern among older Americans remains widespread. Among retirees who lack confidence in their ability to live comfortably throughout their remaining years, inflation is the number 1 cause of worry, according to the Employee Benefit Research Institute’s 2023 Retirement Confidence Survey, conducted after the 8.7 percent COLA kicked in.
Annual adjustments to benefits
When the first Social Security check was issued in 1940, the payments were fixed: The amount of your benefit didn’t change from year to year unless Congress authorized a raise. In 1973, however, the Organization of the Petroleum Exporting Countries (OPEC) declared an oil embargo on the United States and other nations, which sent gas prices through the roof and touched off a spike in inflation.
The CPI, the government’s main gauge of inflation, rose 6.2 percent in 1973 and 11.1 percent in 1974, sharply reducing the buying power of a Social Security payment. In response, Congress authorized automatic COLAs, which adjust Social Security benefits for inflation each year. The first automatic COLA, in 1975, was 8 percent.