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Social Security benefits will be receiving their biggest boost in four decades starting in 2023, following this year’s sustained inflation.
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The Social Security Administration announced last week that next year’s cost-of-living adjustment (COLA) is 8.7%.
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“This may be the first and possibly the last time that beneficiaries today receive a COLA this high,” Mary Johnson, Social Security and Medicare policy analyst at advocacy group The Senior Citizens League (TSCL), said in a recent press release.
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Johnson warns that a recession next year could have severe consequences for your Social Security benefits.
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The majority of funding for the benefits comes from payroll taxes, but high unemployment during an economic downturn could “cause a significant worsening in the finances of the Social Security Trust Fund.”
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The Bank of America forecasts the U.S. economy could lose about 175,000 jobs a month in the first quarter of 2023.
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“In addition, an abrupt turn to deflation could mean that there may be no COLA payable in 2024,” Johnson says.
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Johnson notes that next year’s higher payout could potentially hasten the fund’s insolvency date — an issue that is not being helped by the large drop in birth rates over the last few decades. Less people means less tax revenue to fund Social Security.
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“The last time inflation was this high was in 1981,” Johnson adds. “The Social Security Trust Fund was close to insolvency and Congress enacted a series of bills that cut Social Security benefits and raised taxes.”