The pandemic we have all been experiencing has resulted in so many hardships. The ongoing spike in inflation that has Americans paying more for gas, food, cars, and many other things could lead to the biggest Social Security COLA increase in almost 40 years when officials announce the cost of living adjustment for 2022 in October. That’s just two months from now. And wouldn’t it help if that announced increase was to be a biggie? Well, it appears that it just might be. 2022 may see the largest Social Security monthly payout increases in almost 40 years!
Social Security Changes – Are They on Your Horizon?
Every year some nuances are adjusted in the Social Security system. Usually it’s a modest increase in the amount you will receive and that is based on the CPI, the index that measures inflation each year. We can debate whether or not the index is a valid one. For years seniors have been claiming that it isn’t and doesn’t accurately reflect the “real” costs to seniors like medical costs.
There has been an adjustment in the charges to the Social Security Medicare costs that recipients pay for them as well and they have been going up steadily for some time. No surprise there, is it? That money is deducted right out of your benefits check before you even get your hands on the monthly stipend.
Since I started getting my checks (over 99% of all recipients no longer get a paper check anymore, they are direct deposits these days and so reliable that you won’t even bat an eye worrying about receiving them), I have been unhappy with all of it every year.
Congress Proposes Changes – Finally!
Members of Congress have proposed changes to how the COLA is calculated, which could result in even larger Social Security checks for 60 million recipients and their dependents and survivors in 2022.
That’s because this year, inflation already has led to tremendous hikes in some living costs for U.S. seniors, who have had to scramble to find ways to save money, according to the advocacy group, The Senior Citizens League. The Senior Citizens League, one of the nation’s largest nonpartisan seniors’ advocacy groups, is one of the groups pushing for larger and more standard COLA rates. But even a major increase in your checks may not be enough.
The 2022 Social Security COLA Increase Could Be the Biggest Since 1983
Social Security’s 2021 cost of living adjustment, which began affecting payments in January 2021, was 1.3%. This year’s inflation has already devoured the increase.
The consumer price index (CPI), the primary indicator of inflation in America, showed it hit an annual rate of 5.4% in June, a 13-year high. A New York Federal Reserve survey found consumers expect average inflation of 4.8% for the remainder of 2021, but that may even be an underestimate and that is bad news.
Based on this year’s price hikes, The Senior Citizens League is projecting that Social Security benefits could be boosted by 6.1% for 2022. If that happens, it would be the biggest raise since 1983.
This week the quarterly inflation rate and the CPI will be announced for the last quarter and I am certain that the number will again reflect growing inflation. Look for this announcement towards the end of the week and when you do see it, it may confirm that 2021 will pave the way to big adjustments in your Social Security monthly check.
The Social Security Administration will announce next year’s COLA in October.
A Large Increase Isn’t All Good News
A generous Social Security COLA increase could be bittersweet for some beneficiaries. Policy analysts at The Senior Citizens League say some Social Security recipients could see cuts in other benefits because of the larger proposed checks.
What benefits you ask? Any new higher allotments for Social Security and higher incomes in the checks could lead to trimming of food stamp monies, rental assistance, or Medicare Extra Help, which covers most prescription drug costs. That would offset the COLA increases and spell possible disaster for many seniors, disabled, and poor Americans.
The REAL Cost of Living
Advocates have been arguing for years that Social Security COLAs shortchange seniors because they don’t accurately reflect the prices older Americans pay, especially for medical care and prescriptions. A bill that would alter the way the raises are calculated has been reintroduced in the House of Representatives.
If passed, The Fair COLA for Seniors Act of 2021 bill from Rep. John Garamendi (D-CA) seeks to tie Social Security cost of living adjustments to one more accurately reflecting spending habits of seniors and would base the annual adjustment on a “consumer price index for the elderly”.
It would reflect the costs of items typically purchased by people ages 62 and up, and it could result in higher Social Security payments.
Between 2016 and 2021, increases in overall consumer prices averaged 1.3%. The theoretical price index calculated by The Senior Citizens League would have seen average 1.71% growth over the same period. That’s a difference of over 30% over the actual amount that was increased!
Social Security has not kept pace with retiree costs, especially medical expenses and housing, which have tended to rise more quickly than overall inflation.
Retirees also have taken hits to their savings because of the economic turbulence caused by COVID-19.
What About the “Recovery” and Its Good News?
Despite the record numbers in the stock market and its raging comeback from the pandemic’s initial shock, nearly 50% of retirees surveyed by The Senior Citizens League reported that their retirement accounts remained battered by the end of last year.
A significant number of retired households were hit with soaring cost increases this year at the same time their retirement savings had not recovered from the hit it took in 2020. The Senior Citizens League is calling on the Social Security Administration to take three big steps to better meet the increasing financial challenges faced by the elderly:
- Provide a one-time modest boost to all retirees, to help improve the buying power of their Social Security benefits.
- Tie the annual inflation adjustment to a new consumer price index that more accurately reflects the buying patterns of retired and disabled households, which spend a bigger portion of their income on housing and medical expenses. (The Fair COLA for Seniors Act would appear to do this.)
- Provide a guaranteed minimum Social Security COLA increase of no less than 3%. This would be especially important in years when there is deflation and the COLA drops below zero, as it has done three times in the past.
How Can You Fight Back Against Inflation?
The Fed has stated publicly that it thinks rising inflation could be an issue for another “six to nine months” in what is called a “transitory” moving of prices due to supply shortages and labor shortages in the business world.
That could mean a more extended period of diminished savings and increased spending over the next months and even into 2022. But there are several things all Americans, including seniors, can do to mitigate the budget-battering effects of inflation.
Save on Food
First, redo your monthly budget and prioritize your spending. Look for ways to improve it and start with your grocery and food budgets where you have a lot of control on discretionary spending. Even reducing the spending there by just 5% will go a long way towards fighting inflation.
Save on Housing
There’s another thing you can do right now if, unfortunately, you still have a mortgage that you are paying (even in retirement). It’s still a good time to refinance and slash your monthly payment. Mortgage rates are once again nearing all-time lows, and the end of a pesky refinance fee has made refi loans an even better deal.
Is Mortgage Refinancing Now Really a No-Brainer?
Save on Healthcare
Try to consider protecting against skyrocketing healthcare and looking for a better deal on health insurance. Use a website that allows you to compare plans from hundreds of insurers, to see if there’s an option out there that provides the coverage you need but with lower premiums and out-of-pocket costs.
Save on Shopping
Remember, when you shop online, be sure to take advantage of all the bargains available, so you don’t overpay. Download a handy browser extension that hunts for lower prices and instantly provides the promo codes websites ask for during checkout.
Invest Your Spare Change
If you have been afraid of investing in the stock market, you might try a low-stakes way of dipping a toe in. A popular app allows you to invest in a diversified portfolio using little more than “spare change” left over from your everyday purchases. Start slowly and you may see a new way to increase your cash balances without great risk.
If you are worried about the Social Security COLA increase projection for 2022 and its potential impact on you, now is the time to think ahead about it and prepare for it.
You can look at alternate ways to earn money. You can look at downsizing and ways to cut your expenses. You can work towards influencing your representatives to bolster programs like Social Security and Medicare so that COLA will have less impact on the costs of the things that really matter most to you. If you are disabled or retired, you need help. Now is the time to do something positive about it.
Have you thought about how you would deal with big inflation next year that you are already seeing this year? Do the words inflation, recession, or even depression cause you to plan right now for all of the financial “what ifs” that you may fear the most?