CHICAGO (Businesshala) – (Opinions expressed here are those of the author, a columnist for Businesshala)
A 6 percent increase doesn’t often come along these days for most Americans, but a jump of that magnitude in Social Security benefits is on the way for 2022.
Reflecting the unusual pandemic-induced inflation this year, Social Security recipients will see a 5.9% cost-of-life adjustment (COLA) next year — the largest since 1982. The annual COLA — announced Wednesday by the Social Security Administration — will go to more than 64 million recipients of Social Security, and 8 million who receive Supplemental Security income.
COLAs also affect people who are eligible for Social Security but have not yet filed for benefits. So, if you’re 62 now and looking to claim later, your benefit will be adjusted to reflect the 5.9% COLA for 2022 and any subsequent COLAs paid before your claim.
COLA is one of Social Security’s most valuable features because it holds steady gains against the erosion of inflation over time. Experts often debate whether it accurately measures the inflation experienced by senior citizens, but COLA makes Social Security an inflation-adjusted annuity — which would be too expensive to buy in the commercial annuity market.
Inflation consistently comes up as one of the top concerns of retirees in surveys. This is because seniors generally live on a fixed income. However, during the past 12 years, overall inflation remained generally calm, and COLAs averaged 1.4 percent.
Social Security benefits have lost 32% of their purchasing power since 2000, according to the Senior Citizens League, which tracks inflation affecting senior citizens. The big cola would be welcome news, but rising food, rental housing, home ownership, domestic heating oil and natural gas and drug prices are areas of concern, says Mary Johnson, the league’s Social Security and Medicare policy analyst.
“We’re concerned with a lot of senior citizens that they can’t afford to buy groceries because they’re running out of money at the end of the month, or they can’t afford their medicines — maybe they can’t afford them every second. day or cut their pills in half.”
And the high colas this year could be followed by smaller colas in the next few years if inflation calms down.
COLAs were roughly double the 3.1% growth that Social Security trustees had forecast, noted Stephen Goss, chief acting officer of the Social Security Administration, during a webinar on COLA on Wednesday convened by the bipartisan policy center.
“We think this additional growth over the 3.1% forecast will be at least partially offset by COLAs in the coming years that will be somewhat lower than we expected,” Goss said.
Coming Soon: Final Numbers
The Social Security COLA is determined by an automated formula that averages together third-quarter data for the Consumer Price Index for Urban Salaried and Clerical Workers (CPI-W). The headline figure for 2022, released Wednesday, isn’t the final word on the growth that seniors will see next year.
Part B Medicare benefits are usually deducted from Social Security benefits. This figure is usually released later in the fall, but the Medicare Trustees report released in late August forecast 2022 standard Part B premiums to be $158.50 per month, an increase of $10, or 6.3%, over the year. .
This would still leave most retirees with a substantial COLA. For example, if your monthly profit is $1,500, this translates to a gross COLA of $88.50; If the Part B premium actually jumps by $10, it will be reduced to $78.50.
High-income seniors can see their COLAs effectively shrug off higher taxation of their benefits. Taxes are owed on “combined income,” which includes 50 percent of your adjusted gross income plus non-taxable interest and your Social Security. It only affects beneficiaries with combined incomes equal to or greater than $25,000 for single filers and $32,000 for married filers — but the ceiling is not adjusted for inflation.
Higher COLAs could also push more seniors into the Income-Related Monthly Adjustment Amount (IRMAA) — a surcharge on standard Medicare Part B premiums for those enrolled with modified adjusted gross income at certain levels.
Johnson urges seniors to pay careful attention to any of these potential changes. “You may want to set aside more to pay those bills,” she says.