Now that’s more like it.
The relative wealth of the next year will be shared by older Americans who have struggled to make ends meet with meager Social Security increases over the last decade.
The roughly 70 million people – retirees, disabled people and others – who rely on Social Security will receive a 5.9% cost-of-living adjustment next year, the Social Security Administration said Wednesday. That’s the biggest bump since 1982.
This sharp rise is due to an inflation-fueled COVID-19 spike after many years of low consumer price growth.
For the average retiree who got a monthly check of $1,565 this year, the bump means an additional $92 a month in 2022, boosting the typical payment to $1,657.
Jo Ann Jenkins CEO at AARP stated that “The guaranteed benefits offered by Social Security are more important than ever because millions of Americans continue face the economic and medical impacts of the pandemic.” Social Security provides almost all of the income (90 percent or more) to one fourth of seniors and is therefore America’s largest source for retirement income.
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SSA’s cost-of living adjustment is based on the average annual increase in urban wage earners’ and clerical worker’s consumer price index (CPI-W) from July to September. CPI-W is largely determined by the CPI released each month by the Labor Department.
Labor announced Wednesday that the CPIW increased 5.9% in September, following an August jump of 5.8%.
The COLA has averaged 1.4% the past 10 years – half the average over the prior decade – because of unusually low inflation, according to the Senior Citizen League, an advocacy group.
This period saw tens to millions of Social Security beneficiaries see their cost-of living rises effectively erased by sharply increasing premiums for Medicare. These premiums are deducted automatically from many Social Security checks.
That shouldn’t be the case for most recipients this year because of the healthy COLA advance. Mary Johnson (a Senior Citizen League policy analyst), says that the Part B premium will rise $10, while prescription drug plan premiums will likely increase by about 5%.
Johnson has long complained that the basket of goods that determines the CPI-W index doesn’t reflect the spending patterns of seniors who buy less gasoline, electronics and other products that make up a big portion of younger workers’ spending. Instead, seniors spend more money on food and health care.
Johnson has called for the SSA to base its COLA on a proposed index for the elderly called CPI-E that would put more weight on health, food and other expenditures.
According to league data, Social Security beneficiaries have seen a 32% decrease in their purchasing power since 2000 as COLAS increased by approximately half the amount of the goods and services that retirees typically purchase.
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With energy prices soaring this year, part of that dynamic is being reversed, with seniors, who don’t buy as much gasoline, poised to gain from the large COLA increase.
“They’re getting the benefit of that,” Johnson says.
However, seniors will continue to face steeply rising costs for certain goods and services such as food and rent. The league and U.S. Energy Information Administration predict that seniors will be affected by a 21%- 25% increase in natural gas and heating oil costs for the winter.
Rhian Horgan CEO, Silvur (a maker of an app for retirement planning), said that “Retirees have been hammered by the rising costs of health care and the CPIW does not accurately reflect what retirees are spending on healthcare.”
Although the COLA bump could somewhat narrow Social Security recipients’ longstanding shortfall in buying power, “it’s not going to restore it,” to 2000 levels, Johnson says.
Johnson says that, while we appreciate the high COLA, hundreds of email were received from Social Security recipients with disabilities and retired people stating that they feel the COLA has not been able to keep pace with the rising cost. Johnson also states that Johnson is happy about the “high COLA”. It has been more challenging for some to handle the rampant inflation in 2021.
And, she says, the more generous payment will subject some recipients to new taxes or bump them into a higher tax bracket, offsetting some or all of the increase.
Economists also predict that inflation will rise again in the next year. Supply chain bottlenecks continue driving up product cost, while workers shortages pushing wages higher.
“The COLA is paying for inflation from last year,” Johnson says. “Not,” she adds, “for future years.”