(Washington, DC) – The annual Social Security cost - of - living adjustment (COLA) could be 6.2 percent next year — the highest in almost four decades according to a new estimate from The Senior Citizens League (TSCL). Based on July consumer price index (CPI) data released today by the Bureau of Labor Statistics “The estimate is significant because the COLA is based on the average of the July, August and September CPI data,” says Mary Johnson, a Social Security policy analyst for The Senior Citizens League. “With one third of the data needed to calculate the COLA already in, it increasingly appears that the COLA for 2022 will be the highest paid since 1983 when it was 7.4%,” says Johnson.
Social Security benefits are one of the few types of income in retirement adjusted for inflation. But soaring inflation can still knock a hole in the household finances of retired and disabled Social Security recipients. In 2021 Social Security benefits increased by just 1.3 percent raising the average benefit by about $20. But about 86 percent of Social Security recipients say their expenses increased by much more than that amount. A new survey by The Senior Citizens League asked “Which of the following financial actions have you taken during the COVID-19 pandemic? (March 2020 to present.) Here’s how survey participants responded:
Financial Actions Taken by Retirees During COVID-19 Pandemic March 2020 to Present
|Spent emergency savings||34%|
|Made changes to retirement savings investments.||20%|
|Drew down retirement savings more than usual.||19%|
|Visited a food pantry or applied for SNAP benefits.||19%|
|Provided room and board, childcare or other assistance for adult children and grandchildren.||12%|
|Applied for assistance with heating and cooling costs.||10%|
|Went back to work or took a new job.||10%|
|Applied for Medicare Savings Program or Extra Help to assist with medical or prescription drug expenses.||10%|
|Refinanced a home mortgage.||9%|
|Applied for pharmacy assistance program for one or more expensive prescription drugs.||8%|
|Applied for rental assistance.||4%|
Source: The Senior Citizens League, 2021 Retirement Survey: 547 responses.
The consumer price index (CPI) that’s used to make the annual inflation adjustment can make a difference in the amount of Social Security income that beneficiaries receive over time. Under current law, Social Security benefits are adjusted using an index that measures inflation experienced by younger working adults, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) but does not include the spending patterns of households with retirees age 62 and older. Because this index surveys the spending patterns of younger working adults, it is weighted more heavily for gasoline, which is up 41.8 percent over the past 12 months and driving the steep rise in the COLA. But in 2020 and most of the past 12 years, gasoline prices have been in steep decline. COLAs have averaged just 1.4%.
Retired and disabled Social Security beneficiaries spend their money differently than younger workers, spending more on healthcare and housing. In recent years those categories have increased more rapidly than gasoline but haven’t shown up as higher COLAs because the CPI-W is weighted less heavily for those categories. When retirees don’t receive a COLA that keeps up with their actual costs, their Social Security benefits lose buying power during the course of a retirement. Based on inflation through March, research by Johnson indicates that Social Security benefits have lost 30 percent of buying power since 2000.
Legislation that would tie COLAs to an index that measures inflation experienced by older households, the Consumer Price Index for the Elderly (CPI-E) has recently been reintroduced. The CPI-E tends to grow more quickly that the CPI-W in most, but not every year. “2021 is one of those times when gasoline prices soar and the CPI-W would yield the higher COLA,” Johnson says. The Senior Citizens League works to protect and strengthen Social Security benefits and program financing.
With 1.2 million supporters, The Senior Citizens League is one of the nation’s largest nonpartisan seniors groups. Its mission is to promote and assist members and supporters, to educate and alert senior citizens about their rights and freedoms as U.S. Citizens, and to protect and defend the benefits senior citizens have earned and paid for. The Senior Citizens League is a proud affiliate of The Retired Enlisted Association. Visit www.SeniorsLeague.org for more information.