Senior citizens and other Americans receiving Social Security will see the biggest increase in payments in 40 years
According to data from the Social Security Administration, the cost of living adjustment of about 6% is the largest since 1982. The adjustment is calculated based on the Department of Labor’s measure of inflation faced by blue-collar workers.
The Social Security Administration also said that the maximum amount of income subject to Social Security tax would increase to $147,000 in 2022 from $142,800 this year.
Naomi Fink, a retirement economist at Capital Group, said the extent to which higher-than-usual Social Security adjustments make retirees and other recipients feel more well will depend largely on whether inflation is expected to rise next year by 2021. Easier than that or not. manager.
Consumer prices rose this year at the fastest rate in more than a decade as trillions of dollars in economic stimulus supported consumer demand when supplies of everything from toilet paper to new cars were disrupted by the pandemic. Has been.
“If price increases become transitory and reflect temporary supply shocks and they show a much more modest increase later in 2022, that would be quite a positive for those who got that unexpected cost-of-living adjustment,” Ms. Said Fink, who said the scenario could position Social Security recipients to boost consumption.
“If in 2022 we see similar or even higher price increases and a revision in long-range inflation forecasts, it’s a different picture,” she said.
Federal Reserve Chairman Jerome Powell and other Fed officials have said they expect the increased inflation to be temporary and lessen as friction associated with the economy reopens. Mr. Powell recently told lawmakers that it was difficult to decide when inflation might cool off.
“High prices are generally not good for people living on a fixed income,” said AARP legislative counsel David Sertner. “Social Security may adjust for cost of living, but most other income sources that seniors may have – for example, pension income – are not adjusted for inflation. So even if Social Security keeps pace with inflation If so, it may very well be that there are no other sources of income.”
Nearly half of Americans age 65 and older relied on Social Security for 50% or more of their income in 2019, according to an AARP analysis of Census Bureau data. The analysis found that nearly a quarter of seniors 65 and older relied on benefits for 90% or more of their income.
Mr Sertner said the purchases seniors make more often, such as for medical care and prescription drugs, often have costs that account for a significant portion of the annual cost increase.
In August Medicare’s trustees estimated the standard 2022 monthly premium for Medicare Part B, which covers doctor visits and other types of outpatient care, $10. will increase, or about 7%, from $148.50 to $158.50 this year. This would consume about 11% of the projected increase in retirees’ average monthly Social Security benefits.
Clair Shores, Michigan, retired from her role as a special-education teacher in January. Ms Dykstra, age 63, said she intended to retire between the ages of 65 and 67, but the stress of her job during the pandemic caused her to stop working earlier than planned.
“The demands were really, really, really tough. So I chose my mental health over all expectations,” she said.
Ms. Dykstra said she now lives on an income of about $1,700 a month, of which $1,100 comes from Social Security, compared to about $3,200 a month when she was working.
She said she’s noticed higher prices recently, especially for gas and groceries. Those hikes, combined with their low incomes, have made them picky about the way they spend their money, she said. For example, Ms. Dykstra used to eat out two to three times a week while she was working, but now does so once a week or every two weeks.
“At the point I’m at now, any increase would be just wonderful. It’s really for every dollar of budget I have,” she said of the upcoming Social Security adjustments.
The Social Security Administration bases its living adjustments on the Labor Department’s Consumer-Price Index for urban wage earners and clerical workers each year, or CPI-W, a measure of inflation for working households that differs slightly from the commonly quoted composite consumer-price index, or CPI. The adjustment is based on the difference between the average of the CPI-W index for the third quarter of the current year compared to the corresponding period of the previous year.
Benefit recipients include elderly Americans, disabled and minor children, and spouses of recipients who have died.
The Social Security Board of Trustees said in an August report that the benefit-paying trust fund is projected to be exhausted by 2034, a year earlier than projected in 2020. At that point, Social Security income would be enough to pay about 78% of the scheduled. the profit.
Anki Chen, assistant director of savings research at Boston College’s Center for Retirement Research, said her rough calculations suggest that adjustments to the 2022 cost of living could extend that reduction date by about three months. is greater than. The determining factor will be how fast the total wages paid to US workers rise relative to the adjustment, Ms Chen said, as payroll taxes fund the program. According to the Labor Department, average hourly earnings for private sector workers rose about 4.6% in September from a year earlier.
“If wages aren’t growing at the same rate as inflation in a given year, what’s happening is going to be less than what’s going to happen in profits,” Ms. Chen said. “That’s when you get a mismatch.”
Amara Omeokwe [email protected] . Feather