Social Security recipients are likely to get an annual cost of living adjustment (COLA) of 6% or 6.1% in 2022, according to a new estimate released today by The Senior Citizens League (TSCL).
The COLA that becomes payable in January of 2022 would be the highest since 1982. In 2021 Social Security benefits increased by just 1.3%.
“Our forecast is based on CPI data through August, and there is still one more month of consumer price data to come in before we get the official announcement in October,” said Mary Johnson, Social Security policy analyst for The Senior Citizens League.
“This this year is particularly difficult to forecast with certainty. The inflation patterns caused in large part due to the COVID-19 pandemic were unprecedented in my experience. Price changes due to climate disasters throw a monkey wrench into things on top of the difficulty in watching run-up in costs earlier this year,” she added.
“Based on the new data through August, there’s a downward inflation trend,” Johnson continued. “Although my calculator indicates the COLA could be 6.1%, the chances of inflation remaining high enough for that to occur is only 10% based on 20 years of historic trends. The chances of the data dropping to 6% are twice that high, 20%. And I simply do not have any historic data to continue to support the estimate of 6.2% based on the new data. With the July and August consumer price data, inflation is plateauing,” Johnson says.
Higher gasoline and transportation prices in particular are behind the high COLA estimate for 2022, Johnson says, because those expenditures are given greater weight or importance in the consumer price index (CPI) that’s used to calculate the COLA.
“That works to the advantage of retired and disabled beneficiaries for the COLA payable in January of 2022. That has not been the case for many of the past 12 years when cheap gasoline and other falling prices dragged down the COLA,” she said.
Since 2010, COLAs have averaged just 1.4%. Inflation was so low that no COLA was payable at all in 2010, 2011, and 2016. In 2017 the COLA was almost zero, just a 0.3 percentage point.
Under current law, the Social Security COLA is determined by the percentage change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index surveys the spending patterns of younger working adults under the age of 62 and doesn’t include the households of people who are retired. But older and disabled Social Security recipients allocate their budgets differently than younger working adults, spending a larger share of their income on medical and housing costs which, in many years, tend to rise faster than overall all inflation.
The COLA also doesn’t reflect cost increases in Medicare premiums and other rapidly growing Medicare costs. Research for The Senior Citizens League has found that Medicare Part B premiums are one of the fastest-growing costs in retirement. Medicare Part B premiums, which are automatically deducted from Social Security checks, often consume most, or even all, of the COLA increase.
Social Security recipients who have contacted The Senior Citizens League overwhelming feel that a higher COLA would be long overdue, saying that the COLA doesn’t come close to keeping up with their actual cost increases. When prices rise rapidly at the same time that retirees are receiving a very low COLA, as is the case in 2021, this shortfall can produce long-term impacts on retirement income and even health when retired households without adequate retirement savings run short of cash before the month is over.
“In email after email, we are hearing that people are cutting their spending on prescriptions and groceries because that’s the last things they have left to cut,” says Johnson.
With 1.2 million supporters, The Senior Citizens League works to strengthen Social Security benefits and the COLA.
SEE ALSO:
• 2022 Social Security COLA Estimate Ticks Up Yet Again
• ‘Fair COLA for Seniors Act of 2021’ Introduced in House
• Social Security Confidence Survey Shows Retiree Doubt