How much will the Social Security Cost-of-Living Adjustment increase be in 2022?
After a year of price increases driven by inflation, the Social Security Administration announced a historic 5.9% COLA increase for beneficiaries.
Each month, millions of workers pay part of thier earnings to the Social Security Administration, the logic being that in retirement most people will depend on Social Security benefits.
However, this year with inflation leading to historic price increases across the market, seniors struggled to keep up. In September, the Senior Citizens League, an organization that advocates for the rights of seniors, spoke to the need for a significant COLA increase after hearing from many Social Security beneficiaries that they were "cutting their spending on prescriptions and groceries because that’s the last things they have left to cut.”
Based on Consumer Price Index data from July and August, the organization advocated for an increase of 6.1 percent. On Wednesday 13 October, the Social Security Administration announced that the 2022 COLA for its more than 70 million beneficiaries would be 5.9 percent.
Over the past decade, the Senior Citizen League reported that “COLA doesn’t come close to keeping up with their actual cost increases.” This year as prices for basic goods have surged, those on a fixed income like SSI recipients suffered greatly to cover basic costs. With an increase of this size, many seniors can breathe a little easier that their more substantive checks should help them increase their disposable income when the higher checks start flowing at the end of this year.
How much will this impact the average Social Security beneficiary?
In January 2021, the average monthly social security payment was valued at $1,534. With a 5.9 percent increase, the average beneficiary can expect to see a check that is worth $90 more each month. Over the course of this year, this would mean be an additional $1,086 in benefits.
In December, the Social Security Administration will send all beneficiaries a letter detailing exactly how much their benefits will increase.
What is a COLA?
In 1973, to ensure these benefits are able to increase with inflation, Congress mandated that cost-of-living adjustments, or COLA, be determined and applied to payments for the following year. Those on a fixed income are especially susceptible to inflation, as they have no real control over their income. Additionally, those receiving benefits cannot work, meaning if they experience a decrease in disposable income due to an increase in prices driven by inflation, they are left with few options.
In 2020, the SSA determined a COLA of 1.3 percent, which as prices have risen quickly during the year, has left many seniors with budget shortfalls. On 14 September, the Bureau of Labor Statistics reported that since last August, the Consumer Price Index has tracked an increase of 5.3 percent across all items in the index. Some organizations estimate that the increase for 2022 could be more than four times that seen in 2021.
Do Social Security benefits help keep seniors out of poverty?
In April 2021, the Congressional Research Service released a report 'Poverty Among the Population Aged 65 and Older' which reported that in 2019, 8.4% of seniors were living in poverty.
Sadly, the statistics become bleaker when looking at older age groups. The researchers found that "approximately 11.1% of people aged 80 and older lived in poverty, compared with poverty rates of 9.2% among individuals aged 75-79, 7.4% among those aged 70-74, and 8.4% among those aged 65-69."
The primary motivation for the creation of Social Security benefits was to help seniors stay out of poverty. After working for decades, it has become a shared value within American society that the elderly should not live in poverty.
However, the Congressional Research Service confirmed in their analysis that these benefits "would not be sufficient to eliminate poverty for a large number of older Americans." In 2019, the poverty rate for beneficiaries sixty-five and older was 6.8 percent.
Social Security benefits are often attributed to decreases in poverty among seniors. However, this is not entirely true. The research agency highlighted that while "the proportion of persons aged 65 and older who live in poverty has fallen over the past five decades, the number of aged poor has increased since the mid-1970s as the total number of the aged population has grown.