The Impact of Inflation on Social Security’s Fiscal Health - Wealth Management

It’s a double-edged sword in many respects. While inflation drives the program’s annual cost-of-living adjustment (COLA) and therefore increases the program’s outflow, the steadily increases in the FICA tax wage base compensates with additional tax revenue. This point–characterized by the “rising tide lifts all boats” adage–is developed in an article by journalist, podcaster and author Mark Miller in a post on in which he reviews some of the history of Social Security’s COLA provision and how it works to help beneficiaries deal, at least in part, with rising costs. Miller’s article, which you can read in full here, also touches on the current mechanics behind COLA calculations and contrasts these with the much-discussed proposed alternative CPI-E (E for elderly), noting that the most recent adjustment (5.9%) would not have fared well under CPI-E.

In any event, the COLA prognosticators have begun their examination of what, at least at this point in the year, looks to be another relatively substantial increase in monthly benefits in the wind for 2023. CPI numbers like 8.5%–even 8.9%–are appearing in media accounts of what could happen, and at this point in the year, more than six months away from the actual measurement, what will happen is anybody’s guess. But if you’re interested, here are two recent accounts of what some of the forecasters are thinking lies ahead: Lorie Konish, CNBC, and Brian Anderson, 401KSpecialist.

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