This year’s adjustment is the highest COLA increase in 40 years. In 2022, Seniors receiving Social Security will see around a $100 increase in average monthly retirement benefits, from $1,565 to $1,657.

However, don’t plan on celebrating yet. A high COLA translates to abnormally high consumer prices and inflation, creating an up-hill-battle for seniors. As the economy’s pendulum continues to swing, retirees should start preparing for whatever curveballs get thrown their way. Ethos Capital Advisors are here to inform you of everything you need to know about social security COLA increases in 2022 to help protect your retirement income against inflation. Read on to learn more.

What Is COLA?

Cost of Living Adjustment (COLA) is an annual determination that changes the amount an individual receives from their Social Security retirement benefit. Since the 1970s, COLA’s annual increases became indexed to offset the corrosive effects of inflation, ensuring that retirees maintain their purchasing power while on a fixed income. COLA determinations are now based on The Consumer Price Index (CPI), which measures price changes consumers pay for goods and services.

For seniors, COLAs can significantly impact their quality of life. Retirees are concerned that the high cost of inflation will outweigh their income, leaving many middle-class seniors struggling to afford necessities such as food, utilities, and gas.

What Is the Projected Social Security COLA for 2022?

Social Security and Supplemental Security Income (SSI) beneficiaries will receive a 5.9 percent adjustment— the highest cost of living adjustment (COLA) since 1982. Benefits, payable to more than 64 million Social Security beneficiaries, start at the beginning of January 2022, with benefit increases tied to the Consumer Price Index (CPI-W) from the third quarter of 2020 through the third quarter of 2021.

For those receiving Social Security, this is huge. Over the last 12 years, cost of living adjustments has hovered around a meager 1.4 percent. For further context, in 2021, a 1.3 increase raised average benefits by about $20.

Cost of Living Table for 2022

Can COLA Keep Up with Inflation?

The combination of base effects, supply, and labor issues stemming from the pandemic is to blame for the 1.3% COLA increases of 2021, in addition to exceptionally high inflation rates that continues to burn a hole through American wallets. Overall, prices climbed 6.8% year-over-year. In the Consumer Price Index report for December 2021, all indexed items, excluding food and energy, increased by 5.5 percent over the past 12 months, the most significant 12-month hike since 1991.

“COLAs are intended to protect the buying power of Social Security benefits,” says Mary Johnson, Social Security, and Medicare policy analyst for The Senior Citizens League.

“But, according to consumer price data through July of 2021, Social Security benefits have lost nearly one-third of their buying power, 32 percent, since 2000, about the length of a typical retirement.”

 

Expect a higher price tag for the following consumer goods in 2022:

  • Food. The USDA estimates that grocery prices will increase between 1.5 and 2.5 percent, and eating meals outside the home will see a spike between 3.0 and 4.0 percent.
  • Gasoline Prices. with current gas prices already up more than 40%, expect to see a steady climb in price in 2022.
  • Medication. According to The Centers for Medicare and Medicaid Services, prescription drug plan premiums will increase almost 5 percent in 2022. With Part D out-of-pocket growing by 7.6% from $6,550 in 2021 to $7,050 in 2022.
  • Housing. Expect mortgage rates to rise in 2022 due to factors driving up inflation, including new home prices, cost of building material, and local real estate taxes.
  • Heating. According to the U.S. Energy Information Administration, the cost of heating a home with oil and natural gas will increase by 21 to 25 percent this winter.

Congressman John Garamendi (D-CA) introduced the “Fair COLA for Seniors Act of 2021,” demanding the Consumer Price Index for the Elderly (CPI-E) to calibrate fairer cost of living adjustments for seniors. If the bill gets passed, Social Security will be required to raise benefits to mimic soaring prices caused by inflation.

“Using a COLA that actually reflects how retirees spend their money – especially in health care – is a no-brainer that will increase benefits and make Social Security work better for the people it serves,” said Garamendi.

 

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