In 2021, Social Security benefits increased by just 1.3 percent, raising the average benefit by only about $20.
Social Security recipients can look forward to one of the largest cost-of-living adjustments in nearly 40 years in 2022. The Senior Citizens League predicts an increase of 6.2 percent based on consumer price index data from July.
“The estimate is significant, because the COLA is based on the average of the July, August and September CPI data,” said Mary Johnson, a Social Security policy analyst for the organization. “With one-third of the data needed to calculate the COLA already in, it increasingly appears that the COLA for 2022 will be the highest paid since 1983, when it was 7.4 percent.”
Social Security benefits are one of the few types of income in retirement that are adjusted for inflation. However, soaring inflation still can knock a hole in the household finances of retired and disabled Social Security recipients.
In 2021, Social Security benefits increased by just 1.3 percent, raising the average benefit by only about $20. But about 86 percent of Social Security recipients said their expenses increased by much more than that amount.
Under current law, Social Security benefits are adjusted using an index that measures inflation experienced by younger working adults, the Consumer Price Index for Urban Wage Earners and Clerical Workers, but does not include the spending patterns of households with retirees aged 62 and older.
Because this index surveys the spending patterns of younger working adults, it is weighted more heavily for gasoline, which is up 42 percent over the past 12 months and driving the steep rise in the COLA. But in 2020 and most of the past 12 years, gasoline prices were in steep decline, and COLAs averaged just 1.4 percent.
Retired and disabled Social Security beneficiaries spend more on health care and housing than younger workers. When retirees don’t receive a COLA that keeps up with their actual costs, their Social Security benefits lose buying power during the course of a retirement.
Based on inflation through March, research by Johnson indicates that Social Security benefits have lost 30 percent of their buying power since 2000.
Legislation that would tie COLAs to an index that measures inflation experienced by older households, the Consumer Price Index for the Elderly, recently was reintroduced.
Source: Benefits Pro
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