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COLA increase: People look to SSI ‘as their income replacement,’ retirement expert says

Yahoo Finance speaks with Jamie Hopkins, Managing Partner of Wealth Solutions at Carson on the rise in Social Security COLA 2023 benefits and the cost of living amid retirement.

Video Transcript

JARED BLIKRE: Welcome back. Social Security beneficiaries are looking at receiving higher payments as the Social Security Administration announces an 8.7% benefit increase for 2020 through 2023. What does it all mean for your retirement? Joining us now is Jamie Hopkins, Carson Group managing partner of wealth solutions. So really big jump here. I'm guessing probably the biggest jump in a lot of our lifetimes, right?

JAMIE HOPKINS: Yeah, it's the largest jump since 1981. So you might not be able to tell if you can see me, but I actually was born right after that. So yeah, I have not seen one of these in my life. And to put it in perspective, right, 2020, we had about, like, a 1.3% increase. We had a couple of years of zeros before. And I think everybody knows inflation's been high this last year. And that's where the cola is coming from.

JARED BLIKRE: Well, let me ask you, because we've seen a lot of prices in the sub indices jump by a lot, more than 8 point whatever percent we're talking about here, especially when it comes to rent and food at times. Is this enough, and how are people, how are retirees, who are living off of their benefits, adjusting to this high inflation era?

JAMIE HOPKINS: Yeah, and that's a great question. I'll give a little bit of a positive spin on this. So we saw that number, right? And you see the CPI that most people see was about 8.2% here. And that's-- we track off of something called the CPIU for that main number most people are looking at. This actually comes from something called the CPIW. And that's actually up here at this 8.7%. So we actually saw a higher increase in the cost of living adjustments than the one on the chart right now, that 8.2.

And actually, if you go look at-- there's another number called the CPIE, which actually tracks the spending of seniors. Now, I have not seen the September data yet. I pulled it up this morning. They still only have August in there. But if you run that back August to August, '21 to '22, that actually was about 7.7%. And so that's actually tracking what our seniors are spending.

So the good news there is, right now, it looks like seniors are actually spending on items that are not seeing as high of inflation as the general population. So I'd say, that's a good thing. Now, the hard part is seniors live on more of a fixed income stream. And those adjustments don't occur till next year. So they are trailing right now, right, the adjustment. And that's how Social Security always works. We adjust for the next year. So they're feeling it in their pockets today.

JARED BLIKRE: And I have to imagine there might be some pent-up purchases here. For somebody living on a fixed income, maybe their staple items, maybe their things that they need. But also, there could be some discretionary purchases. Given the length of time since we've seen anything happen like this before you were born-- looking good, by the way-- I would ask, do we have any idea where we could see some of this money end up in our current ecosystem, in terms of our current economy?

JAMIE HOPKINS: Yeah, I think one of the things to think about right now is, are people going to start pushing off some spending? I was in an interview earlier today talking about holiday spending. And I think I saw about 14% of Americans said they already started back in August. They're trying to span those expenditures out. I think that's something to pay attention to as we head into this holiday spending. We want to see this money being spent. We've got millions and millions of Americans that are impacted by Social Security.

And it tends to provide-- people look at this as their income replacement, right, their paycheck replacement. So a lot of people are using Social Security for those basic expenditures, and they're pulling from other things more sort of discretionary. So, you know, I don't know if this going to have a direct impact right now. I think most people are still probably moving along, not adjusting their spending this year due to this cola increase next year.

But this is a serious thing. I mean, it is a good amount of money increase. If you think about it, I think it's $130-something increase on average over the previous year. So more than $1,000 total next year that will be going out into our seniors' pockets.

But as a flip side of that, this number also increases something called the taxable wage base. And so that went from-- I got 147-- 147,000 to about 160,000. So that went up $13,000, which if you apply the 12.4% Social Security taxes to it, for workers, that's about $1,200 more in taxes that will pay next year for going into Social Security, too. So we see an increase in benefits. We also see an increase, on the flip side, in the taxes we will pay if you're earning that much money back into Social Security.

JARED BLIKRE: Well, we appreciate your insights into this issue very near and dear to the hearts of many in our audience. Jamie Hopkins, Carson Group managing partner of wealth solutions.