There May Not Be Another Big Adjustment For Some Time
Just because there’s a record adjustment this year doesn’t mean that people on Social Security should count on getting similar increases in the future.
In fact, the big jump in 2022 may signal that there won’t be large adjustments in the coming years. The last time there was a similar bump, of 5.8% in 2009, there were no adjustments for the next two years.
“People should not say, ‘oh good, this is going to happen every year,'” Altman said.
How A Change To Fra Will Affect Your Ability To Increase Social Security Checks
Full retirement age used to be 65, but amendments to Social Security in 1983 resulted in the full retirement age being pushed later for anyone born after 1937. The change in FRA has been phased in.
- Those born in 1955 have an FRA of 66 and two months. This was the group of seniors who turned 66 in 2021.
- Those born in 1956 will have an FRA of 66 and four months. This is the group who will turn 66 next year.
- FRA is gradually moving back by two months, until those born in 1960 or later will have an FRA of 67.
Because of the phased-in changes, retirees turning 66 next year must wait an extra two months to get their standard benefit, compared with people who reached this milestone this year. And since FRA is gradually moving later each year, future retirees will have to wait even longer to avoid early filing penalties. And, all of these seniors hitting FRA in 2022 or beyond will also have fewer chances to earn delayed retirement credits than their predecessors.
Here’s how this works in practice:
Future retirees will also have to either accept more early filing penalties or give up several months of checks to get their standard benefit by waiting until 66 and four months or longer, depending on their birth year.
Those hitting FRA next year — and all future retirees beyond them — should plan for the fact they’ll have to wait longer or get less money. They also must be aware that they won’t be able to increase Social Security benefits as much as their older counterparts could.
The Boost Won’t Reverse Decades Of Declining Buying Power
The same issues that will cause Social Security recipients’ COLA to be too low to keep pace with inflation in 2022 have been persisting for a long time.
For decades, retirees especially have received raises that are simply too small to allow their checks to continue affording them the same standard of living. In fact, an analysis by the Senior Citizens League revealed there’s been a 30% decline in the buying power of Social Security benefits since 2000.
A large raise this year won’t reverse that trend, so recipients will keep falling more and more behind and will need to rely on their savings or cost-cutting to balance things out.
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Prices Just Keep On Climbing
from the Bureau of Labor Statistics put Social Security recipients on notice that their COLA for 2022 might be something special. Yet many dismissed the hefty price increases as being purely temporary in nature.
When the report for May came out earlier this month, therefore, it came as a shock to many. Far from reversing course, prices continued to rise sharply during the month, with a headline rise of 0.6% for the benchmark Consumer Price Index number. That brought the CPI’s increase over the past 12 months to 5%, a pace not seen for more than a dozen years.
In the past, food and energy prices have often been the culprits behind inflationary pressures, but that hasn’t been the case this time around. So-called core inflation, which excludes food and energy, rose at a faster 0.7% rate in May. As we saw in April, sharp increases in prices of used cars and trucks, household furnishings, airline fares, and apparel helped set the stage for heftier inflation numbers.
Social Security Announces 59 Percent Benefit Increase For 2022
Social Security and Supplemental Security Income benefits for approximately 70 million Americans will increase 5.9 percent in 2022, the Social Security Administration announced today.
The 5.9 percent cost-of-living adjustment will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2022. Increased payments to approximately 8 million SSI beneficiaries will begin on December 30.
The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labors Bureau of Labor Statistics.
Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax will increase to $147,000 from $142,800.
Social Security and SSI beneficiaries are normally notified by mail starting in early December about their new benefit amount. Most people who receive Social Security payments will be able to view their COLA notice online through their personal my Social Security account. People may create or access their my Social Security account online at www.socialsecurity.gov/myaccount.
The Social Security Act provides for how the COLA is calculated.
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A Big Raise Is Coming For Social Securityis It Enough
There is no question that over the past year, Americans have been forking over more and more cash for food, gas, clothing, and any other everyday basic needs.
In fact, the consumer price index, the primary indicator of inflation in the United States, revealed that it stood at an annual rate of 5.4 percent in June, which marked a thirteen-year high.
Huge Raise Coming?
In response, there is the potential for the biggest boost to Social Security benefits in nearly four decades when officials announce the cost of living adjustment for 2022. The Social Security Administration typically confirms next years adjustment in October.
Based on this current years inflation-driven prices, the Senior Citizens League, a nonpartisan senior group, is anticipating that Social Security benefits could climb by more than 6 percent for 2022. If this occurs, it would be the largest increase since 1983.
Will It Be Enough?
However, according to the Senior Citizens League, even such a robust boost to the benefit payouts might not be enough to really help the countrys vulnerable senior citizens.
Were seeing sustained high levels of people who do not appear to have the resources they really need to get by in retirement, she added.
Why Is This Happening
The first question probably springing up is “Why?” Why is this happening to a program that’s been in place for more than eight decades? The answer is the result of a number of factors.
To begin with, part of the problem is that baby boomers are exiting the workforce and entering retirement in droves. We certainly can’t place the blame on baby boomers for when they were born, but this rapid increase in eligible beneficiaries is weighing down the worker-to-beneficiary ratio. In even plainer English, there just aren’t enough new workers to counteract the number of boomers entering retirement and becoming eligible for Social Security benefits.
Increased longevity has been another core problem for the program. When signed into law in 1935, Social Security’s creators envisioned it providing a financial foundation for low-income workers for a few years during their retirement. But since 1960, the average life expectancy in the U.S. has risen by roughly nine years. Data from the SSA shows that the average 65-year-old today lives about two more decades, allowing seniors the chance to receive a payment from Social Security for decades, rather than years, as originally intended.
Even the Federal Reserve may be partly to blame. Keeping interest rates at a record low for seven years negatively impacted the yields on those aforementioned special-issue bonds that Social Security invests its excess cash into. This has a negative impact on interest income.
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Explainer: Why Social Security Cola Will Jump Next Year
WASHINGTON Rising inflation is expected to lead to a sizeable increase in Social Securitys annual cost-of-living adjustment, or COLA, for 2022. Exactly how much will be revealed Wednesday morning after a Labor Department report on inflation during September, a data point used in the final calculation.
Over the last 10 years, the Social Security COLA has averaged about 1.7% annually as inflation remained low. But the economic recovery from the coronavirus pandemic has triggered rising prices for a wide range of goods and services, and thats expected to translate to bigger checks for retirees.
WHY ARE SOCIAL SECURITY BENEFITS ADJUSTED?
Policymakers say the COLA works to preserve the purchasing power of Social Security benefits, and shouldnt be seen as a pay hike for retirees.
The Great Recession saw a COLA increase of 5.8% for 2009, and the number for next year may rival that.
WHATS CHANGED OVER THE PAST YEAR?
All that gets sifted into the prices that consumers pay for their everyday needs.
Some Workers Will Pay More In Social Security Taxes
Most current workers pay Social Security tax on all of the money they earn — but not everyone does. Some people have earnings above the “wage base” limit, which is the maximum income subject to Social Security tax each year. Any money earned above the wage base limit is neither taxed nor counted when retirement benefits are calculated.
The wage base limit is changing in 2022, which means some high earners will end up being taxed more for Social Security. In 2021, the maximum wage subject to Social Security tax was $142,800, but it’s going up to $147,000 in 2022. Since employees pay a 7.65% Social Security tax, this means workers could pay as much as $321.30 in extra taxes. The self-employed pay double that amount since they don’t have an employer to pay half their Social Security tax, so could end up paying $642.60 more over the course of the year.
Both current and future retirees need to know about these changes so they are prepared for how their tax bills and benefit checks could be affected.
Understand The Supply Chain Crisis
Covids impact on the supply chain continues.The pandemic has disrupted nearly every aspect of the global supply chain and made all kinds of products harder to find. In turn, scarcity has caused the prices of many things to go higher as inflation remains stubbornly high.
Almost anything manufactured is in short supply.That includes everything from toilet paper to new cars. The disruptions go back to the beginning of the pandemic, when factories in Asia and Europe were forced to shut down and shipping companies cut their schedules.
First, demand for home goods spiked.Money that Americans once spent on experiences were redirected to things for their homes. The surge clogged the system for transporting goods to the factories that needed them like computer chips and finished products piled up because of a shortage of shipping containers.
Now, ports are struggling to keep up.In North America and Europe, where containers are arriving, the heavy influx of ships is overwhelming ports. With warehouses full, containers are piling up at ports. The chaos in global shipping is likely to persist as a result of the massive traffic jam.
No one really knows when the crisis will end.Shortages and delays are likely to affect this years Christmas and holiday shopping season, but what happens after that is unclear. Jerome Powell, the Federal Reserve chair, said he expects supply chain problems to persist likely well into next year.
How Much Will Social Security Increase In 2022
Many Americans have been bothered by inflation throughout the coronavirus pandemic. But throughout the year, theres been hope that one group, Social Security beneficiaries, might have a consolation at the end of the year: An historically large cost-of-living allowance raise in their benefits.
This year, the COLA for Social Security was just 1.3 percent. But its expected to rise next year, due to inflation. The COLA is pegged to the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.
The most recent estimate from the Senior Citizens League predicted a 6.2 percent cost-of-living adjustment for Social Security recipients for 2022. That would represent the largest increase since the early 1980s.
The estimate is significant because the COLA is based on the average of the July, August, and September CPI data, Mary Johnson, a Social Security policy analyst for the Senior Citizens League, said in a statement in August.
Its not clear exactly when the number for next year will be announced, but traditionally it has been in early October, meaning the report could arrive any day now.
The Motley Fool looked at that this week.
Furthermore, seniors may want to bank some of their COLA in 2022 if they dont need to spend it all. While we dont know what future raises will look like, it could end up being the case that 2022s COLA is more of an anomaly and stingier COLAs will resume once inflation calms down.
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How The Social Security Cola Is Calculated
SSA starts with the Consumer Price Index for Urban Wage Earners and Clerical Workers , an official measure of the monthly price change in a basket of goods and services, such as food, energy and medical care. The CPI-W is tracked by the U.S. Bureau of Labor Statistics . SSA then calculates the COLA by comparing the average of the CPI-W for July, August and September of the previous year with the average for the same three-month period in the current year. The percentage change is the COLA for the following year.
For example, in 2021, the third-quarter average CPI-W was 5.9 percent higher than it was in the third quarter of 2020. As a result, the average monthly benefit for all retired workers will rise by 5.9 percent to $1,657 from $1,565. The average monthly benefit for all disabled workers will rise to $1,358, from $1,282. The COLA amount is typically announced by SSA in October. The COLA takes effect in January 2022.
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Cola 202: Social Security Benefits Will Be Increased By 59% Next Year
All we know so far
- IRS Tax Refund deadline.Friday, October 15 is approaching
Recipients of social security payments in the United States are set to see a boost in the cost-of-living adjustment in 2022.
The increase is due to the United States seeing an upturn in the price of commodities across the country, as well as fuel and cars.
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What Is A Normal Cola
A cost-of-living adjustment is an increase in Social Security benefits to counteract inflation. Inflation is measured using the consumer price index for urban wage earners and clerical workers . Automatic yearly COLAs began in 1975. The COLA for 2022 is 5.9%.
Senior Citizens League Want A Fourth Stimulus Check
According to the Senior Citizens League, May’s inflation rate was higher than anticipated, and that is expected to be the case again in October.
With this in mind, they are working at Capitol Hill hoping to have a fourth stimulus check approved. The White House, though, has all but ruled out that possibility.
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Beneficiaries Have Received Cost
by John Waggoner, AARP, Updated October 13, 2021
En español | Every year, by law, Social Security recipients are eligible for a cost-of-living-adjustment . The increase in benefits is designed to help beneficiaries keep up with rising prices. Retired workers receive the annual COLA from the Social Security Administration , as do survivors, those getting Social Security Disability Income and recipients of Supplemental Security Income payments. Yet, while these beneficiaries are, indeed, eligible for COLA increases annually, the amount of the increase can vary greatly from year to year and there’s no guarantee of an increase in any given year.
On Track For A 4%+ Cola
For purposes of determining inflation adjustments, the key figure to watch was the CPI-W inflation index. That number moved higher by 0.9% for the second straight month in May, rising to 263.612. That’s 5.6% higher than it was this time last year.
To figure out the actual COLA, though, the Social Security Administration will need to look at the CPI-W figures for July, August, and September. It will then compare those numbers to the average during the same period in 2020, which was 253.412.
Anything can happen in the coming months, but if price levels don’t make any moves in one direction or the other, then current levels would imply a 4% COLA for 2022. There’ve only been two years since 1990 that had higher COLAs than that.
There’s also a significant likelihood that prices will continue to move higher. It would take a lot more upward pressure for the CPI-W to move high enough to match the 5.8% COLA that Social Security recipients got in 2008. However, with the next-highest reading coming in at 4.1% from 2005, it wouldn’t take much for 2022’s COLA to move into the No. 2 spot looking back more than 30 years.
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