Inflation is causing serious financial hardships for many people, and one group in particular has been anticipating some relief: retirees.
The good news for them is that the Social Security Administration announced the annual cost of living adjustment (COLA) for beneficiaries Wednesday morning, and it's the largest increase since 1982. In 2022, the monthly checks will be 5.9% higher, just a hair lower than recent predictions of 6.0% to 6.1%.
The 5.9% increase is significantly higher than 1.4%, which has been the average COLA over the past 12 years. The annual COLA increase is calculated to help people cope with inflation – which is why it will be so high in 2022. But the increase is based on how the expenses of working people are rising, and critics say it doesn't accurately reflect the shopping basket, so to speak, of older Americans. They spend more on housing and medical expenses, which have experienced intense inflation recently.
While Social Security benefits will rise by their largest percentage in 40 years, the average monthly check will increase by just $92, from $1,565 to about $1,657. That extra $92 per month simply won't be enough to change the fact that Social Security isn't enough to live off.
"It’s welcome," Mary Johnson, Social Security and Medicare policy analyst for nonpartisan The Senior Citizens League (TSCL), says of the the new COLA. But "it’s important to understand that the purpose of the COLA is to protect the buying power of [Social Security] beneficiaries," she adds. "For those with the lowest benefits, and those with little or no savings, the situation is grim."
Inflation and Social Security COLA increase
Over the past month, TSCL has received hundreds of messages from older Americans who say that due to inflation, they are struggling to make ends meet. That’s in part due to chronically low COLAs that haven’t kept pace with rising costs.
“Over the past 21 years, COLAs have raised Social Security benefits by 55%, but housing category costs rose nearly 118% and healthcare costs rose 145% over the same period,” Johnson says. At the same time, the buying power of Social Security benefits has decreased by about a third since 2000, after adjusting for inflation.
Consumers are seeing higher prices across the board when purchasing everything from groceries to clothing. The Consumer Price Index (CPI) for August shows prices overall are 5.4% higher than they were 12 months ago, according to the U.S. Bureau of Labor Statistics. That's much higher than the Federal Reserve’s inflation target of around 2%. Gas prices hit a seven-year high this week, and whether you’re buying pet food or a used car, virtually every consumer in the U.S. is feeling the effect of inflation.
Experts believe inflation will eventually ease off its rapid climb, but in the meantime, your income has less purchasing power than it did a year ago. Surveys show many workplaces are planning to issue raises of around 3% ahead of the new year, but that won't be nearly enough to keep pace with the inflation we’ve already seen.
“Any salary increase in that 3% range is causing you to fall behind in terms of inflation,” Bill Dixon, managing director with Pearl Meyer, a compensation consulting company, told Money.
For older adults on limited incomes, price increases can be particularly devastating. The COLA is based on inflation according to how younger workers spend their money. Workers generally spend more of their income on transportation, education and food and beverages than older adults. But that doesn’t accurately reflect the typical expenses of older adults. A greater share of their monthly budgets goes toward housing, for example. The current housing boom is bringing with it higher property taxes as well as skyrocketing rents; the median rent in the country is 15% higher than it was a year ago.
Johnson of TSCL says that the organization is currently lobbying Congress for a fourth stimulus check that would pay $1,400 just to Social Security recipients, citing the “soaring prices” older adults are facing. "Our group has contacted almost every Member of Congress and the offices of Congressional leadership about this initiative," says Johnson.