Social Security cost of living adjustment highest since 1982
social Security Recipients in 2022 are in line to receive the biggest payout growth in nearly four decades, reflecting a pandemic-driven inflationary hike – but the boost could eventually deplete the fund a year earlier than expected.
The Social Security Administration said Wednesday that next year’s cost of living adjustment, or COLA, would be 5.9%. The monthly increase for the retirees averaged $92 as of Wednesday, bringing that amount to $1,657, the administration said. A typical couple’s benefits would climb from $154 to $2,754 per month.
But the increase — the sharpest annual adjustment since 1982, when recipients saw a bump of 7.4% — could push Social Security toward bankruptcy.
The government has projected that Social Security, one of the largest federal benefit programs, will be unable to pay full benefits starting in 2033. At that time, only 76% of benefits could be paid.
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But considering the roughly 6% increase in benefits, the program could be dealt a financial blow: The Committee for a Responsible Federal Budget estimated the fund could be exhausted by 2032 with the latest COLA increase.
“Social Security is already on its way to bankruptcy and we anticipate the program’s trust funds may be a year before the higher costs are paid,” the group said in a statement.
The increase marks the abrupt end of low inflation that has seen little COLA growth over the years. Over the past 12 years, the average adjustment has been just 1.4%. In 2021, recipients only received a 1.3% increase, or an additional $20 per month for retirees.
Social Security payments will be highest in 39 years as inflation rises
The adjustment will affect about 70 million people, including Social Security recipients, disabled veterans and federal retirees. About half of senior citizens live in homes where Social Security benefits provide at least half of their income, while about 25% rely on monthly payments for nearly all of their earnings.
The annual Social Security change, which is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, continues as the country grapples with unusually high inflation.
Consumer prices have risen dramatically over the past few months, with Federal Reserve Chairman Jerome Powell attributing a surge to pandemic-induced disruptions in the supply chain, labor shortages that push wages higher and incentives. A wave of consumers flowed with cash. Everything from gasoline to toilet paper to groceries is now priced higher, with the highest inflation rate in more than a decade.
Still, Powell and other Fed officials have mostly said they expect the increased inflation to be fleeting and fade as the economy recovers from the pandemic.
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Since 2000, Social Security benefits have lost about 30% of their purchasing power due to inadequate adjustments, which drive inflation and rising health care costs, according to the Senior Citizens League, a nonpartisan advocacy group. The group has prompted Congress to adopt legislation that would index inflation adjustments specifically for senior citizens, such as the Consumer Price Index for the Elderly, or CPI-E. The index specifically tracks household expenses for people aged 62 and above.
Mary Johnson, an analyst with the group, said, “Over the past 21 years, COLAs have increased Social Security benefits by 55 percent, but housing costs have risen nearly 118 percent and health care costs by 145 percent. ” “Worse, it appears that inflation hasn’t happened to us yet, and the purchasing power of Social Security benefits could run out in 2022.”