: The largest COLA hike in 40 years is coming to Social Security in 2022 — what that means for your retirement
The cost-of-living adjustment in 2022 will be 5.9%, according to the Department of Labor. It will be the largest increase to COLA in 40 years, and a boost to Social Security beneficiaries’ checks.
Read: Social Security benefits to jump 5.9% in 2022, the biggest increase in 40 years
For more than a decade, these adjustments have averaged below 2%, which in many cases has done little for Social Security beneficiaries – or nothing,in instances when their expenses have risen dramatically but their benefit checks have barely adjusted for inflation.
“For almost everybody who is retired and still alive today and receiving Social Security, this will probably be the highest COLA they have ever received,” said Mary Johnson, a Social Security policy analyst for the Senior Citizens League. Johnson tracks COLA every year, and her estimates for the following year’s adjustments are usually quite accurate (she expected the 2022 COLA to be between 6% and 6.1%, for example). Next year’s COLA will be the highest it’s been since 1982, when it was 7.4%. Anybody who began claiming Social Security at the earliest allowable age, which is 62, that year would be 102 today.
See: Biggest Social Security COLA in years coming, but it could be bigger
“We are talking about an inflation rate that almost all Social Security recipients have never experienced,” she said.
The hike for 2022 can be attributed to inflation caused from the country’s rebound since the pandemic began, such as the price in gasoline and petroleum, Johnson said.
Social Security benefits are linked to the Consumer Price Index for urban workers, which weighs the average prices of goods used by workers younger than retirement age (such as gas). There is usually a significant disconnect between that CPI and another measurement, known as CPI-E, which is tied to the spending of older Americans, such as healthcare. Because of this, benefit increases normally do not meet the needs of rising inflation for goods and services like Medicare premiums and homeowners’ insurance.
Also see: The Social Security COLA and ‘inflation illusion’
The increase is still modest. The average Social Security benefit is around $1,543 a month. A 6% increase would equate to roughly $93 – a help to older Americans on fixed income, but perhaps not equal to the high expenses associated with healthcare and housing. Still, even tying benefits to CPI-E, as Biden has proposed, would not make a drastic change for beneficiaries’ checks, Johnson said. “The CPI-E in most years yields higher COLAs, but does not reflect the cost of some of the fastest growing prices that retired and disabled Social Security beneficiaries face.”
Older Americans were hit hard by the pandemic. Johnson has received emails from some Social Security beneficiaries who said they’re losing their homes, or reducing their meals, in an attempt to make ends meet. They may have worsening health situations, or are taking on new obligations as a result of the pandemic.
“The guaranteed benefits provided by Social Security and the COLA increase are more crucial than ever as millions of Americans continue to face the health and economic impacts of the pandemic,” AARP Chief Executive Officer Jo Ann Jenkins said in a statement. “Social Security is the largest source of retirement income for most Americans and provides nearly all income (90% or more) for one in four seniors.”
The lack of high (or higher) cost-of-living adjustments in the last decade have not helped as well — older Americans lost 32% of buying power because the COLA, linked to CPI-W, did not keep pace with rising costs they typically experience.
Even though the CPI-E may not be as high of an adjustment as older Americans may need, compared to the CPI-W, “we are getting lots of emails that [beneficiaries] simply run out of money before their next check comes in,” Johnson said. “They don’t have the money to pick up groceries or prescriptions.”