How does the social security Cost-of-Living-Projection affect me?
The COLA projection for 2022 is up to 6.1% and while your social security payments will increase, it will likely be offset by the rising inflation.
The Senior Citizen League, an organization that advocates for the rights of seniors, released a new projection for the 2022 Cost-of-Living-Adjustment (COLA) that forecasted an increase between 6 and 6.1%. For comparison, in 2021 the increase was 1.3%. The last time a COLA increase was this high was after the credit crunch in 2009. That year, it rose by 5.3%.
Why this is important is wholly to do with how large the COLA is in comparison to inflation.
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So what does it mean for my social security payments?
In absolute terms, they will increase. In January 2021, the average monthly social security payment was valued at $1,534, so for January 2022 the new average would be $1,628.
While this looks good on paper, the reality is that inflation is rising just as quickly as the projected COLA change. In fact, the final COLA change will be decided in October, and if inflation changes more between then and January it could turn into a real term benefit cut.
For the 44% of retirees who have no other savings, this would be bad news. If the COLA rate stays at 6.1% then this would be ahead of inflation, if inflation also stays at its current pace.
Why does the COLA projection change?
The COLA projection always changes, but usually with a small range. The US has had historically low inflation levels for a decade.
However, the pandemic has totally disrupted the economic situation in the US. With the huge government spending to keep people and businesses afloat, inflation has risen sharply. The current inflation rate is 5.3%, that is to say in one year everything will be just over 5% more expensive. Before the pandemic, inflation was under 1.5% annually.
The US government put it in the COLA system in 1973 to prevent inflation destroying people's fixed pensions. In 2019, the Social Security Administration (SSA) paid benefits to as many as 180 million people each month, the majority of whom were senior citizens.