Based on consumer price index data through April 2021, it appears that the 2022 Social Security cost of living adjustment (COLA) could be the biggest since 2009, and much bigger than the 2021 increase of just 1.3%.
This morning, The Senior Citizens League (TSCL) released its first forecast of the 2022 COLA after analyzing the April CPI data, and has it pegged at 4.7%—which would be more than three times higher than the 2021 COLA. But with such a high current level of inflation volatility, TSCL stressed this estimate could change several times before the official COLA is announced in October 2021.
An abrupt jump in inflation in February and March wiped out a temporary improvement in the buying power of Social Security benefits, according to a new study released today by TSCL, the Washington D.C.-based nonpartisan senior advocacy group known for tracking Social Security COLAs.
The study, which compares the growth in the Social Security cost of living adjustments with increases in the costs of goods and services typically used by retirees found that, while consumer prices flatlined in 2020 through January 2021, retires will not be benefiting now.
The annual COLA that increased Social Security benefits in January of 2021 by just 1.3% only added about $20 per month to the average benefit amount seniors are receiving this year.
“While the lack of inflation in 2020 did improve the buying power of Social Security benefits by 2 percentage points through the month of January 2021—from a loss in buying power of 30% to a loss of 28%—that improvement was completely wiped out by soaring inflation in February and March of this year,” says Mary Johnson, a Social Security policy analyst for The Senior Citizens League (TSCL).
The new study found that consumer price data through March 2021 indicate that Social Security benefits have (once again) lost 30% of their buying power and “that loss of buying power could grow deeper in 2021, should the current inflationary trends continue,” Johnson says.
The Senior Citizens League, which has been conducting the study for 12 years, typically looks at data from the 12-month period of January of the previous year to January of the current year.
“But we are in an aggressive inflation pattern that I haven’t seen previously,” Johnson says. “We felt compelled to include this data in our study findings for 2021, in order to learn how this abrupt rise of inflation affects the buying power of Social Security benefits today.”
The study looks at 39 expenditures that are typical for people age 65 and up, comparing the growth in the prices of these goods and services to the growth in the annual COLAs. Of the 39 items analyzed, 27 exceeded the COLA while 14 were lower than the COLA.
Since 2000, COLAs have increased Social Security benefits a total of 55%, yet typical senior expenses through March 2021 grew 101.7%. The average Social Security benefit in 2000 was $816 per month. That benefit grew to $1,262.40 by 2021 due to COLA increases. However, because retiree costs are rising at a far more rapid pace than the COLA, this study found that a Social Security benefit of $1,645.60 per month in 2020 would be required just to maintain the same level of buying power as $816 had in 2000.
TSCL found the fastest-growing costs for older Americans since 2000 are out-of-pocket prescription drug costs, which have risen 272% since 2000, and Medicare part B premiums, which have gone up 226%.
A recent survey conducted by TSCL found that 45% of survey participants reported that, after the deduction for just the Part B premium alone, their COLA increased their Social Security benefit by less than $15. In addition, another 8% of the survey’s respondents report no net increase to their benefits at all.
To help protect the buying power of benefits, TSCL supports legislation that would provide a modest boost in benefits and base COLAs on the Consumer Price Index for the Elderly (CPI-E) or guarantee a COLA no lower than 3%.
“This study illustrates why legislation is needed to provide a more fair and adequate COLA,” Johnson says.
CLICK HERE to see TSCL’s just-released 2021 Social Security Loss of Buying Power Study.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
