Retirees who watched their budgets get burned by shockingly high prices for gas, groceries and other goods will welcome the news about an 8.7% raise in Social Security benefits in 2023.

Those receiving Social Security will get an extra $145 a month if they're receiving an average benefit of around $1,674 a month for retired workers. A cost-of-living adjustment in this example would add up to roughly an additional $1,748 a year.

It is the highest inflation-adjusted hike since 1981 when the inflation adjustment was 11.2%.

And the boost is larger than the much-talked-about 5.9% hike in 2022 since inflation proved to be far more ingrained this year than many had anticipated.

Inflation hurt budgets

To get through the past year, of course, consumers had to dip further into their savings or cut back on what they were buying. The hike in benefits next year only helps going forward — and won't do much if inflation runs hot again next year.

"The adjustment only gets them back to where they were at the beginning of the year, before prices really took off," said Richard Johnson, director of the Program on Retirement Policy at the Urban Institute.

"Every time prices increase in 2023, they’ll continue to fall behind."

The consumer price index rose 8.2% for the past 12 months through September and was up 0.4% on a month-to-month basis. Food was up 11.2% for the 12 months ending in September, gasoline was up 18.2%, and new vehicles were up 9.4%, according to the U.S. Bureau of Labor Statistics announcement Thursday.

What happens to Medicare Part B?

The good news, though, is that retirees who are 65 and older won't see their Medicare Part B premium go up; instead, it will go down slightly, according to Mary Johnson, a Social Security policy analyst for advocacy group The Senior Citizens League.

Medicare Part B — the part that pays for doctor and hospital outpatient services — is automatically deducted from Social Security checks. She noted that the standard Part B premium in 2023 will be $164.90, which is $5.20 less per month from the 2022 premium.

The annual deductible for all Medicare Part B beneficiaries will be $226 in 2023, according to Medicare, which is a decrease of $7 from the annual deductible of $233 in 2022.

Inflation has plenty of downsides for retirees, though.

Higher benefits going forward, Johnson noted, could put more pressure on Social Security's financial picture in the future. The surplus in the Social Security trust funds that disburse retirement, disability and other Social Security benefits are projected to be depleted by 2035. If so, it is estimated that only 80% of benefits would be covered for many years after that.

Many retirees had little room in their budgets

Retirement isn't quite what the brochures promised, as the prices for everyday goods kept climbing and the values of long-term investments in 401(k) plans and IRAs kept tumbling in 2022.

Beth Truesdale, research fellow for the Kalamazoo-based W.E. Upjohn Institute for Employment Research, said the key problem for many aging consumers isn't higher inflation. The real issue, she said, is that many older Americans had so little slack in their budgets even before prices soared.

More: Social Security and COLAHow inflation will drive up benefits

For years, the theory has been there would be three potential sources of income for retirees — Social Security, private pensions and personal savings and investments. It was called the three-legged stool — something that might let you sit comfortably when you stopped working. Social Security was the foundation upon which other building blocks for retirement income could be added.

Increasingly, though, the theoretical chair is wobbly.

"For a lot of people, that three-legged stool actually looks more like a unicycle," said Truesdale, who is a visiting scholar at the Harvard Center for Population and Development Studies.

"There's really only one stream of income and that's Social Security."

On average, we're looking at roughly $20,000 a year in Social Security benefits for the average retirees. Many receive less.

Women and people of color — many of whom had low wages throughout their working years — have much lower Social Security benefits, according to the National Council on Aging.

While many people are doing OK in retirement if they have savings and a pension, many more dread the next rent hike or the next round of higher prices on simple things like coffee or bread, and they're panicking about just how much their heating bill could go up this winter.

Many depend on Social Security for most of their income

Take a look at these stats from Social Security: Among elderly Social Security beneficiaries, 37% of men and 42% of women receive 50% or more of their income from Social Security benefits. Worse yet, 12% of men in that group and 15% of women rely on Social Security for 90% or more of their income.

It's absolutely essential that cost-of-living adjustments offer some protection when inflation is running at levels not seen in 40 years.

Nearly 9 out of 10 people age 65 and older were receiving a Social Security benefit as of June 30.

Truesdale told me in a phone interview that many retirees simply weren't able to build up much savings on their own or benefit from working at companies that offered generous pensions or retirement savings plans.

Only about 50% of American workers have some sort of employer-based pension or retirement plan, she said, and that's been true for decades.

Among American workers in their late 50s and early 60s, Truesdale said, about 35% have no retirement savings outside of Social Security.

The median account balance for all 55- to 64-year-old workers, she said, is $15,000. The median account balance among those with retirement savings is less than $100,000.

"That's not enough to fund any sort of retirement really," she said.

Among those who are in the top 10% of earners in that age group, the median account balance goes up to about $250,000.

If you turned that into an annuity around age 60, Truesdale said, it would generate about $1,000 to $1,200 every month for the rest of your life.

"That's also not enough to support the kind of retirement that a lot of people would like to have," she said. "The picture for Americans is that by and large, across-the-board people don't have enough retirement income from sources outside of Social Security.

"And Social Security is really modest because it was never designed to be the only source of retirement income."

Building up retirement savings isn't simple

About 32% of the workforce in private industry has no access to private pension coverage, according to data from Social Security.

And who is really going to set aside money for retirement savings on their own, if they don't have access to a 401(k) plan at work? Not many people, unfortunately.

Only 16% of those without access to an employer-sponsored plan said they have any retirement savings, according to Social Security data.

Losing a job late in a career triggers hardships

The message now, of course, is simply work longer. Don't retire. Take a job on the side in retirement.

Three wobbly legs isn't enough to stand on, so get a fourth — a paycheck.

Yet working longer and delaying claiming Social Security benefits until age 66 or 67 isn't always as simple or straightforward as many people suggest, when it comes to planning for a financially stable retirement.

Anyone who was born in 1960 or later has a full retirement age of 67. (If you were born on Jan. 1, you’d refer to the previous year.) Once that full retirement age was 65. But it has been gradually moving higher. Full retirement is the age at which you can claim 100% of the benefit that Social Security calculates from your lifetime earnings record.

Only about half of older U.S. adults — disproportionately male, white and college-educated — are continuously employed in their 50s, according to "Overtime: America's Aging Workforce and the Future of Working Longer." The new detail-rich book was edited by Lisa F. Berkman and Truesdale.

What's more troubling: Many times, workers who do lose a job later in their careers will not find another one that pays anywhere close to what they were making earlier. It's a shocking reality for anyone in the auto industry or other fields that have cut back or offered buyouts to those in their 50s.

Truesdale, who I heard speak at a National Press Foundation Fellowship in Washington, D.C., in September, noted that so many people have a personal story that they're willing to share with her as she's spoken at events, including one at The Brookings Institution for the book's launch.

One woman told her that her 62-year-old son who has an MBA moved back to her home after he lost his job and went through a divorce. Others have parents or loved ones facing financial struggles after unexpected job losses later in life.

Many times, she said, older workers are less likely than younger ones to lose jobs in a recession. But that's not always the case and it tends to be far harder for older workers to find other jobs.

"In the Great Recession, as in most recessions, older workers were less likely than younger ones to lose their jobs, mostly because younger workers tend to be more vulnerable to 'last in, first out' employment policies,' " she said.

"But in the pandemic recession, employment rates dipped much more sharply among workers age 65-plus than among middle-aged workers, as COVID presented the biggest threat to the health of older adults," Truesdale said.

Exiting the workforce in late middle age can be permanent, the "Overtime" authors note, because age discrimination and other challenges can make landing a new, good-paying job difficult.

Only 1 in 10 of these involuntarily separated workers ever earned as much after their separation as before, according to research by Johnson, of the Urban Institute, and Peter Gosselin, formerly a contributing reporter at ProPublica and a senior fellow at the Brookdale Center on Aging at Hunter College in New York.

Slightly more than one-half of adults in their early 50s who are working full time, full year with a long-term employer subsequently experienced an employer-related involuntary job separation, according to the research.

The researchers noted: "Median household income fell 42% following an employer-related involuntary job separation, and median household income at age 65 for workers who experienced an involuntary separation was 14% lower than for those who did not."

The retirement crisis is already here for many, even if a bump up in benefits might offer some cushion. More higher-paying jobs, more access to portable and automatic retirement savings accounts and improved policies that enable people to work longer all could help address the challenges of an aging population, according to Truesdale and the contributors to "Overtime."

As much as some will celebrate the extra money for Social Security benefits — which are no doubt needed — it's also a good time to consider why retirees face so many financial challenges to start with.

Contact Susan Tompor: stompor@freepress.com. Follow her on Twitter @tompor. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.

This article originally appeared on Detroit Free Press: Social Security COLA announcement includes increase for 2023