The annual Social Security cost-of-living adjustment (COLA) could be 6.2% percent next year—the highest in almost four decades according to a new estimate from The Senior Citizens League (TSCL), based on based on July consumer price index (CPI) data released today by the Bureau of Labor Statistics.
“The estimate is significant because the COLA is based on the average of the July, August and September CPI data,” says Mary Johnson, a Social Security policy analyst for The Senior Citizens League. “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%,” Johnson said.
Today’s new estimate shows a modest bump from the TSCL’s July estimate of 6.1%, but it has continued to increase as the year has progressed, driven largely by rising gas prices. In May, TSCL predicted a 4.7% COLA increase for 2022.
Social Security benefits are one of the few types of income in retirement adjusted for inflation. But soaring inflation can still knock a hole in the household finances of retired and disabled Social Security recipients. In 2021 Social Security benefits increased by just 1.3%, raising the average benefit by about $20. But about 86% of Social Security recipients say their expenses increased by much more than that amount.
A new survey by The Senior Citizens League asked, “Which of the following financial actions have you taken during the COVID-19 pandemic (March 2020 to present)?
The top three responses from survey participants?
- 34% spent emergency savings
- 20% made changes to retirement savings investments
- 19% drew down retirement savings more than usual
Which CPI makes a difference
The consumer price index (CPI) that’s used to make the annual inflation adjustment can make a significant difference in the amount of Social Security income that beneficiaries receive over time.
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 (CPI-W) but does not include the spending patterns of households with retirees age 62 and older. Because this index surveys the spending patterns of younger working adults, it is weighted more heavily for gasoline, which is up 41.8% over the past 12 months and is driving the steep rise in the COLA. But in 2020 and most of the past 12 years, TSCL said gasoline prices have been in steep decline and annual COLAs have averaged just 1.4%.
Retired and disabled Social Security beneficiaries spend their money differently than younger workers, spending more on healthcare and housing. In recent years those categories have increased more rapidly than gasoline but haven’t shown up as higher COLAs because the CPI-W is weighted less heavily for those categories. 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% of 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 (CPI-E) has recently been reintroduced. The CPI-E tends to grow more quickly that the CPI-W in most, but not every year.
“2021 is one of those times when gasoline prices soar and the CPI-W would yield the higher COLA,” Johnson said.
With 1.2 million supporters, The Senior Citizens League works to protect and strengthen Social Security benefits and program financing.
SEE ALSO:
- Treasury Facing Heat on Overdue Social Security Trustees Report
- Social Security COLA Estimate Rises Again on Inflation Fears
- ‘Fair COLA for Seniors Act of 2021’ Introduced in House
- Social Security COLA Estimates Rise Sharply on Inflation News
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.
I think that all things considered,, the way this country has been “ruined’ by all the dumb ass politicians, and all their idiotic “political stupidity, we should get at least an 11.2% raise. Let us look at the real picture. No one wants to work, the prices are out of this world, “foreigners” are “invading” our work environment and unable to speak “English”. Biden ruined this country with his appalling 45% approval rating. He has a lot of room to ‘smack Trump, We’ll be getting rid of old Joe B in 2024, He’s OUTTA HERE!!!