Approximately 70 million Americans will see a 5.9 percent increase in their Social Security benefits beginning January 2022, and Supplemental Security Income (SSI) payments beginning December 30, 2021.
Last month, an email announcement to recipients focused on the biggest benefit increase since it jumped 7.4 percent in 1982.
Cost-of-Living Adjustment (COLA) notices will be mailed throughout the month of December to retirees, survivors, disability beneficiaries, SSI recipients, and representative payees.
Why Cost Of Living Adjustments?
The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics to help keep pace with inflation.
The demand for food, cars, gasoline and other goods rose during the COVID-19 pandemic. And as the country started opening up, businesses had a difficult time keeping up with the increased demand. However, if today’s disruptions in the supply chain are temporary, and inflation eases, Social Security beneficiaries will keep more of their 2022 increase.
“The rise in inflation is the major driver for increases in Social Security payments. Demand created a rise in prices, causing inflation to jump to 5.3%, which is the largest increase since Aug. 2008,” said Mark Hinkle, from the SSA Press Office.
“It’s the energy prices that are causing havoc,” says Mary Johnson, Social Security and Medicare policy analyst for The Senior Citizens League. Gas has risen 42.1% in a year.
“Higher prices reflect the disarray caused by the pandemic,” says Mark Zandi, chief Economist, at Moody’s Analytics. He expects the inflation rate will decline to about 2 percent in 2022 as supply and demand even out. Nevertheless, higher prices at any time for any reason takes a toll on retired men and women.
How to Calculate COLAs
Beginning back in 1975, Social Security started automatic annual cost-of-living allowances. The change was enacted by legislation that ties COLAs to the annual increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The Bureau of Labor Statistics calculates CPI-Ws on a monthly basis. When there is an increase, it must be rounded to the nearest tenth of one percent. If there is no increase, or if the rounded increase is zero, there is no COLA for the year.
The change meant inflation no longer drains value from Social Security benefits. By law, it is the official measure used by the Social Security Administration to calculate COLAs.
Other Adjustments Will Take Effect
Other adjustments that take effect in January of each year are based on the increase in average wages. Based on that, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $147,000 from $142,800.
The earnings limit for workers who are younger than “full” retirement age will increase to $19,560. The Administration deducts $1 from benefits for each $2 earned over $19,560.
The earnings limit for people reaching their “full” retirement age in 2022 will increase to $51,960. Social Security deducts $1 from benefits for each $3 earned over $51,960 until the month the worker turns “full” retirement age, and there is no limit on earnings for workers who are “full” retirement age or older for the entire year.
As you know, Social Security is the largest source of retirement income for most Americans and provides nearly all income (90% or more) for one in four seniors.
“The guaranteed benefits provided by Social Security and the COLA increase are more crucial than ever as millions of Americans continue to face the health and economic impacts of the pandemic,” AARP CEO Jo Ann Jenkins said in a statement.
“It couldn’t have come at a better time,” say retirees. The sharp increase tied to a COVID-19-fueled spike in inflation after years of insignificant consumer price increases is a welcome relief to many seniors whose fixed incomes are under the threat of being broken.
If you have questions or concerns, contact us at Hefren-Tillotson today.