Social Security recipients hoping for more cash to spend in 2022 should be pleased — to an extent — by the Oct. 13 announcement from the Social Security Administration.
One year after receiving a measly increase in their benefits, Social Security recipients will see the biggest cost-of-living adjustment — 5.9% — since the early 1980s, the federal agency announced.
The COLA was as high as 5.8% as recently as 2009, however.
The average retired worker’s payment of $1,565 per month in Social Security benefits will be $1,657 after the COLA for 2022 takes effect, according to federal estimates. That’s an extra $92 each month.
The average retired couple’s collective payment of $2,599 per month will be $2,753. That’s an extra $154 monthly — for two people.
The COLA will take effect in January for more than 64 million recipients of Social Security benefits.
It will take effect on Dec. 30 for about 8 million recipients of Supplemental Security Income, or SSI, benefits — income supplements for people who are elderly, blind or disabled, and who have little to no income.
COLAs for the past decade were:
- 2021 — 1.3%
- 2020 — 1.6%
- 2019 — 2.8%
- 2018 — 2%
- 2017 — 0.3%
- 2016 — 0% (no adjustment)
- 2015 — 1.7%
- 2014 — 1.5%
- 2013 — 1.7%
- 2012 — 3.6%
What is a COLA?
Cost-of-living adjustments are meant to counteract the effect of inflation. As the Social Security Administration describes it:
“The purpose of the COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation.”
By law, Social Security COLAs are tied to the federal government’s Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, for the third quarter of the year — specifically, the change in the index since the same period of the prior year.
When the CPI-W shows no average change over those four quarters, or if it decreases, there is no Social Security COLA for the next year.
As the Bureau of Labor Statistics defines it, a consumer price index is “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”
Critics argue that it’s unfair to tie Social Security retirement benefits to the CPI-W because it’s based on costs that workers commonly incur — which can differ from costs that retirees face.
In fact, a 2020 analysis by the Senior Citizens League found that Social Security retirement benefits lost 33% of their purchasing power from 2000 to 2019. This is due to retirees’ expenses increasing faster than Social Security COLAs, according to the league.
Why your 2022 COLA could be less than you think
When Social Security recipients also have Medicare health insurance, their Medicare Part B premium generally is deducted from their Social Security payments. (Part B is the component of Medicare that covers doctor visits and other outpatient services.)
So, if a big jump in the COLA coincides with a big jump in the Part B premium, the premium increase essentially could cancel out part or all of the COLA.
The Medicare Part B premium amount for 2022 has yet to be announced officially. But Part B increases have outpaced COLA increases over the past two decades for reasons we detail in “2 Things That Hurt Social Security’s Inflation Protection.”
A recent analysis by the Center for Retirement Research at Boston College found that between 2000 and 2020, the average annual Part B premium increase was 5.9% while the average annual Social Security COLA was only 2.2%.
In December, the government will notify Social Security recipients of the exact amount of their 2022 COLA after Part B premiums are deducted. It will mail the notice and also post it to the online Message Center that beneficiaries can access through their Social Security account.
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