Now it’s more like that.
Older Americans scratching the meager increases in their Social Security checks over the past decade will reap a relative boon next year.
The roughly 70 million people – retirees, people with disabilities and others – who depend on Social Security will receive a cost of living adjustment (COLA) of 5.9% next year, the Social Security Administration said on Wednesday. It’s the biggest bump since 1982.
The sharp increase is linked to a surge in inflation fueled by COVID-19 after years of paltry increases in consumer prices.
For the average retiree who received a monthly check of $ 1,565 this year, the increase means $ 92 more per month in 2022, bringing the typical payment to $ 1,657.
“The guaranteed benefits provided by Social Security and the increase in COLA are more critical than ever as millions of Americans continue to face the health and economic impacts of the pandemic,” said the CEO of AARP, Jo Ann Jenkins, in a statement. “Social Security is the largest source of retirement income for most Americans and provides almost all income (90% or more) to one in four seniors.”
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The ASS bases its adjustment to the cost of living on the average annual increases in the Consumer Price Index for urban and office workers, or CPI-W, from July to September. The CPI-W largely reflects the general CPI that the Ministry of Labor publishes each month.
On Wednesday, Labor said the CPI-W rose 5.9% a year in September after jumping 5.8% in August.
COLA has averaged 1.4% over the past 10 years – half the average for the previous decade – due to unusually low inflation, according to the Senior Citizen League, an advocacy group.
During this period, tens of millions of Social Security beneficiaries have seen much or all of their increases in the cost of living effectively wiped out due to the sharp increase in Medicare Part B premiums, which are automatically erased. deducted from many social security checks.
This should not be the case for most of the recipients this year due to the good progress of COLA. The premium for Part B is expected to increase by $ 10 and drug plan premiums are expected to increase on average by about 5%, said Mary Johnson, policy analyst for the Senior Citizen League.
Johnson has long complained that the basket of goods that determines the CPI-W index does not reflect the spending habits of seniors who buy less gasoline, electronics and other products that make up a large portion of spending young workers. Rather, the elderly are spending more on food, health care costs and other items whose prices rose sharply during the pandemic.
Johnson asked the SSA to base its COLA on a proposed index for the elderly called CPI-E that would put more weight on health, diet and other expenses.
Since 2000, beneficiaries of social security have lost 32% of their purchasing power, COLAS having increased by about half the cost of goods and services generally purchased by retirees, according to the league.
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With energy prices soaring this year, some of that momentum is being reversed as older people, who buy less gasoline, are ready to take advantage of the surge in COLA.
“They take advantage of it,” Johnson says.
At the same time, older Americans will still face significantly higher costs for certain goods and services, including food, rent, and prescription drugs. Seniors could also be affected by a 21% to 25% increase in the costs of heating oil and natural gas this winter, according to the league and the United States’ Energy Information Administration.
“Retirees have been battered by rising healthcare costs, and the CPI-W does not accurately reflect how much retirees spend on healthcare,” said Rhian Horgan, CEO of Silvur, creator of a retirement planning app.
While the COLA hike may somewhat reduce the long-standing purchasing power shortfall of Social Security recipients, “it won’t restore it” to 2,000 levels, Johnson says.
“While the high COLA is welcome, we have received hundreds of emails from retired and disabled Social Security recipients who say the low COLAs of recent years have not kept up with their rising costs. ” Johnson said. “This has made it harder for many to cope with the runaway inflation of 2021.”
And, she says, the more generous payment will subject some recipients to new taxes or put them in a higher tax bracket, offsetting some or all of the increase.
Additionally, many economists forecast high inflation again next year as supply chain bottlenecks continue to drive up product costs as labor shortages push wages up. of employees and related prices on the rise.
“COLA is paying for inflation last year,” Johnson said. “Not,” she adds, “for years to come.”