How have Social Security benefits in 2022 changed with respect previous years?
Social Security payments have been indexed using the cost-of-living adjustments since 1975 ranging from zero to a record 14.3 percent increase in 1980.
Social Security recipients will see the largest increase to their benefits in 40 years after the Administration announced a higher-than-normal cost-of-living adjustment (COLA) for 2022. The 5.9 percent COLA 2022 was slightly larger than the increase announced in 2008 when benefits got a 5.8 percent bump.
The Social Security Administration calculates the COLA based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This process of bringing benefits in line with rising wages and cost of consumer goods was designed to protect workers’ benefits and the Trust Funds to which they contribute.
Social Security benefits indexed to buffer older households from inflation
Inflation has been a problem from the inception of the Social Security program. Prior to the first increase to Social Security benefits based on the cost-of-living adjustment in 1975, it was up to Congress to raise benefits periodically. In 1950, Congress approved a 77 percent hike in payments to beneficiaries making up for the loss of purchasing power recipients had experienced due to inadequate increases in prior years.
During the 1950's and 1960's there were periodic increases to how much Social Security paid recipients but there was concern how much inflation eroded the purchasing power of benefits over the years in between. This led Congress, on the recommendation of the Advisory Council on Social Security, to index benefits annually based on the CPI-W in 1972 to provide a consistent level of protection to workers over time.
Rampant inflation to moderate increases
The early years of benefits being indexed to inflation saw spiraling inflation and high unemployment forcing Congress to act once again and with urgency. Without reforms it was predicted by some point in the 1980's the old-age and survivors insurance (OASI) Trust Fund would be unable to pay benefits on time. This led to legislation in 1983 that gradually increased the age of eligibility while maintaining retirement benefits levels.
The biggest cost-of-living adjustment to benefits since 1950 came in 1980 when benefits were increased by 14.3 percent. Over the ensuing decades inflation has been brought under control reducing the annual COLA increases but after an economic shock such as the covid-19 pandemic and its aftermath there have been spikes.
2022 COLA highest in 40 years
Over the past ten years the yearly average of the COLAs was 1.7 percent with increases ranging from a zero percent rise in 2016 to 3.6 percent in 2012. The increase for 2022 is currently an outlier at 5.9 percent and the highest since 1982 when it was 7.4 percent, just edging out the 5.8 percent increase in 2008.
In dollar terms this years increase means $92 extra per month when Social Security payments based on the cost-of-living adjustment when the hike goes into effect. That translates to the average retired Social Security recipients receiving $1,657 monthly. The previous year benefits went up by just $20 when there was a 1.3 percent increase to the COLA, increasing the average monthly benefit to $1,565.
Although inflation is expected to remain high through the end of the year the Federal Reserve has predicted that it will drop back around two percent next year.
- Social Security contributions
- Retirement pension
- Covid-19 economic crisis
- Senior citizens
- Coronavirus Covid-19
- Economic crisis
- Economic climate
- Infectious diseases
- Social security
- Working relations
- Labour market policy
- Life sciences