You’ll get a much-needed boost if you depend on Social Security benefits. Every year, beneficiaries of Social Security and Supplemental Security Income (SSI) get an automatic yearly cost-of-living adjustment (COLA). The purpose is to maintain the recipients’ catch up with increasing prices.
Social Security Recipients May Receive A 6.2% Increase
According to the Senior Citizens League, the COLA for 2022 will be 6.2 percent. It is the largest increase in almost four decades. The nonpartisan Senior Citizens League made this prediction, not the Social Security Administration.
Nonetheless, many workers in the United States are desperate for a raise. That’s because the country grapples with rising inflation while it recovers from the COVID-19 crisis. The 1.3 percent COLA raise in 2021 has lagged behind the inflation in recent months. For example, in July 2021, prices were 5.4 percent higher than in July 2020.
While a 6.2 percent benefit increase would be significant, the COLA in 2022 may actually be higher. Gasoline costs has already affected the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The gas prices is already already up more than 40 percent this year. In 2022, this, coupled with general increases in the cost of other goods and services included in the CPI-W, may result in even greater increases in benefits.
COLA Increases May Not Be Enough Due To Healthcare Expenses
However, others believe that COLA increases would not be adequate to preserve seniors’ buying power. That is because of the increasing health-care expenses.
First and foremost, there are Medicare expenses to consider. The Social Security Administration works with the Center for Medicare and Medicaid Services to ensure that COLA increases are not dwindled by annual increases in Medicare Part B payments for Social Security recipients who pay Part B premiums.
Due to increases in the Medicare Part B premium, the Medicare hold harmless provision ensures that Social Security benefit payments are not reduced below their current dollar value. For those who qualify, this effectively caps premiums at the amount of each COLA.
You end up with less money each year if you keep your benefit dollar value constant. You’ll have less purchasing power next year than you do this year due to inflation.
Furthermore, some argue that the CPI-W may not accurately reflect how many retirees spend their money.
The overall trends of the products and services that seniors buy, such as health care, frequently outpace inflation rates for the CPI-W goods and services. Despite changes in Medicare premiums, this has resulted in a loss of purchasing power for many seniors. That’s in comparison to the amount of support Social Security intends to provide.
That’s why Rep. John Garamendi, D-Calif., has proposed The Fair COLA for Seniors Act of 2021, which proposes basing Social Security benefit COLAs on the Consumer Price Index for the Elderly rather than the CPI-W.
According to the law, COLAs averaged 2.9 percent between 1982 and 2011. However, if they were adjusted using the CPI-E, they would have increased by 3.1 percent on average. Over the course of decades, this may mean a difference of hundreds of dollars in monthly benefits. Given that Social Security is most seniors’ primary source of income, these increases may be very beneficial to many.