Will the 2023 Social Security COLA MISS REALITY??

in this video we discuss why the 2023 cost of living adjustment may not represent reality for many retirees coming up next on holy schmidt holy schmidt i was in columbus ohio a few months ago and i was approached by an older gentleman who watches the channel he was very nice i ran into him in the lobby of the hotel that i was staying at and we struck up a conversation about the cost of living adjustment social security and inflation his concern was that in the past the cost of living adjustment didn't reflect his personal situation in life he retired several years ago and noted that the last two cola adjustments didn't reflect inflation at least not his inflation in fact inflation seemed to get worse post the adjustment i explained that the cola adjustment represented the previous year's inflation and was not a number anticipating the current year but it would eventually catch up but then he said something that got me thinking about what happens to so many retirees and was the genesis for this video he seemed to indicate that his costs went up even higher than the cola adjustment in many areas while in others they seem to be okay it doesn't take a lot of work to know that your dollar today doesn't buy what it bought a year ago as of july 2022 the inflation index called the consumer price index showed a annualized inflation number of 8.5 percent but when you deconstruct that number many costs were up more than 8.5 some of them as high as 70 or 80 percent higher year-over-year and for those of you who don't know the inflation index cpi is what determines your cost of living adjustment every single year but here's the question if at the end of 2022 the inflation index showed an eight and a half percent increase and retirees received an eight and a half percent increase in their cost of living adjustment would that increase be enough to cover their increase in costs many people would say no and for a portion of them they might be right let me explain there are two reasons why the inflation index won't capture what the average retiree or many retirees anyway will spend in the year ahead the first is that the categories for the inflation index are weighted towards the entire population not just for retirees yet retirees spend differently than the population at large the inflation index top five categories are transportation which is coming in at 16.9 percent of the total spend and it represents things like fuel automobile costs maintenance insurance etc food which represents 15.4 percent of total spending medical costs which represents 6.1 percent of total spending and education which represent 5.9 of total spending for reference here's a side-by-side comparison of how someone 65 years and older spends their funds housing represents 35 percent of total household spending transportation represents 15 percent health care represents 14 percent food 16.2 percent and utilities is number five at eight percent you can already start to see a problem housing costs for example are lower for a retiree and retirees often own their own home either outright which means that their housing costs represent taxes or with a fixed mortgage payment so their costs don't generally go up too much taxes can certainly go up of course but they won't represent 35 percent of a retiree's total cash flow on household spending now what happens if the housing inflation number is lower than the overall average well it pulls the average down and that is exactly what's happening when this happens the funds that a retiree has dedicated to spending goes towards the other items in the top five and candidly most of those actually are well in excess of 8.5 by the way as of july 2022 housing was running at an annualized inflation rate of 5.7 percent transportation was particularly hard hit even though gasoline is down from its peaks at july 2022 it was still up 44 over the same period of time last year the good news by the way is that all things being equal summer tends to have higher fuel prices than the rest of the year and we're through the summer at least for 2022. in terms of healthcare medical services were up 5.1 percent in terms of the overall inflation index but the cost of medicare part d was up 14 so there was a pretty big increase on that 5.1 number this increase in medicare part b is because while the costs themselves didn't go up dramatically the individual claims the number of claims went up dramatically because of covet and also something called eduhelm which is an alzheimer's medicine that came online last year the fifth item on the overall list is education not a big item for retirees but number five on the retiree list is utilities and frankly that number actually got hammered for retiree electricity was up 15.7 percent year-over-year natural gas was up 30.5 percent year-over-year fuel oil was up 75.6 percent year-over-year a big increase the next part is the inflation adjustment itself it's based on spending habits not a constant basket of items that don't change and people tend to spend less when inflation is running high than they do during the good times or they spend differently anyway here's what i mean the inflation index in one form or another has been around since 1919. in the beginning there was no need to worry about what was in the basket because it didn't change products and services were put into the basket and a year or two later the companies and the products and services were still available in the open market in 1919 for example the basket might include red circle coffee armored bacon and artos soft drinks now if you don't know what any of those are you're not alone none of them exist today by the way fish and chicken were considered a poor person's beef not a healthy inexpensive alternative as they are today in 2022 the same can be said with items in the health care segment of the basket for example chamberlain's colic and cholera remedy was very expensive its active ingredient was a highly addictive drug that is not available today but it certainly was available over the counter back then by the way the replacement to this type of medicine is tums if you used to buy 93 octane for your firebird trans am today you might buy 91 octane and if nobody's looking maybe even 89 octane if people do this in mass because they want to save money or because the product is no longer available then the basket changes the categories stay but the items in the categories do not this has a tendency to drive inflation numbers down even if you are buying 93 octane gas for your trans am others are buying 91 and so 91 is the new benchmark think about this across all products and categories filet mignon is 14 a pound new york strip is 10 a pound a bmw 5 series is 54 000 an acura tlx is 39 000. you get the point the world substitutes which happens in highly inflationary times like right now the basket composition changes and true inflation is not reflected the good news is that we have the ability to bring our costs down through substitution not all countries have this option by making different choices that fact alone will help us navigate these inflationary times add to that forward thinking and planning and you should be able to navigate these rocky times until we come out on the other end in my next video i discuss tips and tricks to help keep inflation under control this is jeff schmidt thanks for watching

Channel: Holy Schmidt!

Views: 57,289

Keywords: 2023 cola increase, 2023 cola increase, 2023 cola increase estimate, 2023 cola increase update, 2023 cola increase for social security, 2023 cola, social security, social security, social security benefits, social security increase for 2023, social security explained, social security spousal benefits, social security increase

Id: ITfLCJA3XEY

Length: 7min 42sec (462 seconds)

Published: Sun Aug 28 2022