Now that’s more like it.
Older Americans scraping by on meager increases in their Social Security checks the past decade will reap a relative windfall next year.
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.
The sharp increase is tied to a COVID-19-fueled spike in inflation after years of paltry consumer price increases.
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.
“The guaranteed benefits provided by Social Security and the COLA increase are more crucial than ever as millions of Americans continue to face the health and economic impacts of the pandemic,” AARP CEO Jo Ann Jenkins said in a statement. “Social Security is the largest source of retirement income for most Americans and provides nearly all income (90% or more) for one in four seniors.”
SSA bases its cost-of-living adjustment on average annual increases in the consumer price index for urban wage earners and clerical workers, or CPI-W, from July through September. The CPI-W largely reflects the broad CPI that the Labor Department releases each month.
On Wednesday, Labor said the CPI-W rose 5.9% annually in September following a 5.8% jump in August.
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.
During this period, tens of millions of Social Security beneficiaries saw much or all of their cost-of-living increases effectively erased because of sharply climbing premiums for Medicare Part B, which are automatically deducted from many Social Security checks.
That shouldn’t be the case for most recipients this year because of the healthy COLA advance. The Part B premium is set to rise by $10 and prescription drug plan premiums are likely to increase an average of about 5%, says Mary Johnson, a policy analyst for the Senior Citizen League.
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. Seniors instead spend more on food, health care costs and other items that have seen sharp price increases during the pandemic.
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.
Since 2000, Social Security recipients have lost 32% of their buying power as COLAS grew by about half as much as the cost of goods and services typically purchased by retirees, according to the league.
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.
At the same time, older Americans will still face sharply higher costs for some goods and services, including food, rent and prescription drugs. Seniors also could be socked by a 21% to 25% surge in home heating oil and natural gas costs this winter, according to the league and the U.S. Energy Information Administration.
“Retirees have been pummeled by the rising cost of health care, and the CPI-W does not accurately reflect how much retirees are spending on health care,” says Rhian Horgan, CEO of Silvur, maker of a retirement planning app.
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.
“While the high COLA is welcome, we have received hundreds of emails from retired and disabled Social Security recipients who say that the low COLAs in recent years have not kept pace with their rising costs,” Johnson says. “That has made it more difficult for many to cope with the rampant inflation of 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.
Also, many economists are forecasting high inflation again next year as supply chain bottlenecks continue to drive up product costs while labor shortages push employee wages, and related prices, higher.
“The COLA is paying for inflation from last year,” Johnson says. “Not,” she adds, “for future years.”
Source: USA Today written by Paul Davidson. Published on October 13th 2021.