The Social Security Cost of Living Adjustment just had the biggest boost in 40 years. Here are all the details.
There have been many economic impacts as a result of the pandemic, and here’s another one: the Social Security Administration (SSA) just announced it will increase benefits by 5.9% in 2022. The bump will lift the average benefit by $92 to $1,647, up from an average of $1,556. For couples where both spouses are Social Security beneficiaries, the average will rise $154, from $2,599 to $2,753.
Why the COLA Increase?
The increase is in response to rising consumer prices for goods and services, and is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W (up 5.4% in September from one year earlier). That CPI-W increase is the biggest annual gain since 2008, and it comes on the heels of massive economic stimulus and tight supply chain constraints. Federal Reserve Chairman Jerome Powell and other officials at the Fed have continued to say they’re expecting this current state of inflation to be short-lived.
If you’re still collecting a paycheck, you may have a higher amount of earnings subject to the Social Security tax. The maximum amount of earnings subject to Social Security is increasing 2.9% to $147,000 instead of $142,800.
Increases Through History
The first time that COLAs were introduced was in 1975, following a 1972 amendment that was an answer to spiking inflation at the time. Before that, increases for Social Security recipients weren’t automatically built into the program. That first increase was 8%.
The highest COLA ever was in 1980 at 14.3%, and in recent years they’ve been as low as 0.0 (2015), with 1.3% in 2020.
Will It Be Enough?
COLAs are intended to help preserve the purchasing power of retirees despite rising costs, but many are saying this current COLA increase won’t be enough — and not just because of inflation.
Health care costs are skyrocketing, and for those who pay Medicare Part B premiums, those come directly out of their Social Security benefits. Even though there’s a “hold harmless provision” that prevents benefits from being reduced below their current dollar value regardless of Medicare Part B premium increases, the problem is that maintaining the same benefit dollar amount equates to less and less each year due to inflation.
Some are advocating for COLA to be calculated not using the CPI-W (which may not reflect retiree spending), but using the Consumer Price Index for the Elderly (CPI-E) instead.
Would you like to better understand the Social Security COLA 2022 in light of your individual wealth planning circumstances? Contact us for a personalized approach to financial planning and wealth management.