Social Security recipients will receive a 5.9 % cost-of-living adjustment (COLA) effective January 2022 — the highest in 40 years. The high COLA comes as more than 62 million retired and disabled Americans have spent much of 2021 struggling with price increases the likes of which haven’t been seen since 1982.
The COLA will increase an average $1,565.00 retiree benefit by $92.00 per month. But concern is growing that the Medicare Part B premium increase, which is automatically deducted from Social Security benefits, could take a significant portion of the increase.
The COLA was just 1.3% in 2021 and, over the past 12 years, COLAs have been at unprecedented lows, averaging just 1.4% since 2010. TSCL is hearing from seniors around the country who point out that COLAs in recent years haven’t come close to keeping up to the actual price increases experienced by older adults. We frequently hear that, even though the COLA for 2022 may be the highest in years, the actual rising costs experienced by seniors rose even more, because the government’s measure of inflation doesn’t accurately reflect the purchasing patterns of retired and disabled Social Security recipients.
The minimal growth in Social Security benefits from 2010 through 2021 had the biggest financial impact on the Social Security income of retirees who retired in 2009 or before. That group has seen little increase in net Social Security benefits for 12 years. Even retirees who have retirement savings are feeling the pain. About 50% of respondents in TSCL’s 2021 Senior Survey report that their retirement savings had been negatively impacted by the COVID-19 caused recession, and still had not recovered by early 2021.
So why is the COLA going to be so much higher this time? The COLA is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), younger working adults. This index gives greater weight (or mathematical importance) to consumer items purchased more frequently by younger people, like gasoline and automobiles. In recent years when the price of gas was cheap, COLAs have been low as well. But, since February of this year, consumer prices in almost every category leapt into hyperspace, especially gasoline and transportation services, as business started to gear back up this year. Social Security recipients will receive a higher COLA than in recent years for this reason.
Meanwhile, the COLA still doesn’t adequately reflect the portion of income that Social Security recipients spend on housing and healthcare costs. And the COLA doesn’t directly measure increases in Medicare Part B premiums at all. Yet research for TSCL has found that Medicare Part B premiums and out-of-pocket spending on prescription drugs are the two fastest growing costs in retirement.
TSCL supports several bills that would address in several ways the growing problem of inadequate Social Security benefit growth:
- Enact legislation to guarantee that the COLA is never lower than 3%.
- Provide a one-time boost to all retirees and tie future COLAs to an index that more fairly represents prices experienced by older Americans, such as the Consumer Price Index for the Elderly (CPI-E).
- Adjust the income thresholds that subject Social Security benefits to taxation so that Social Security recipients can keep more of their benefits.
What do you think of the 2022 COLA? Send us your comments at www.SeniorsLeague.org.