According to a new estimate just released today, September the 14th by The Senior Citizens League (TSCL), Social Security recipients are likely to get an annual cost of living adjustment (COLA) of 6% or 6.1% in 2022.
Now if you recall from my previous videos on this topic, the COLA has been assumed to be 6.2% for a while now. Mary Johnson, Social Security policy analyst for The Senior Citizens League, elaborates on this by stating the following.
“Our forecast is based on CPI data through August, and there is still one more month of consumer price data to come in before we get the official announcement in October”.
Johnson goes on to state, “This year is particularly difficult to forecast with certainty. The inflation patterns caused in large part due to the COVID-19 pandemic were unprecedented in my experience. Price changes due to climate disasters throw a monkey wrench into things, on top of the difficulty in watching a run up in costs earlier this year.
Based on the new data through August, there’s a downward inflation trend. ”If you turn your attention to this graph, you’ll notice we reached the maximum inflection point for the monthly percent change around June or July timeframe, and then it looks like it starts to drop off in August. So it’s pretty clear to me that inflation is beginning to plateau.
So what exactly was causing this sharp rise in inflation in the first place? Higher gasoline and transportation prices in particular are behind the high COLA estimate for 2022 because those expenditures are given greater weight or importance in the consumer price index that’s used to calculate the COLA. That has not been the case for many of the past 12 years when cheap gasoline, and other falling prices dragged down the COLA.
Since 2010, COLA’s have averaged just 1.4%. In fact, inflation was so low that no COLA was even payable at all in 2010, 2011, and 2016. In 2017, the COLA was almost zero, at a miniscule 0.3 percentage points. As I mentioned in my last video, the Social Security COLA is determined by the percentage change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (or CPI-W). This index surveys the spending patterns of younger working adults under the age of 62 and doesn’t include the households of people who are retired. But older and disabled Social Security recipients allocate their budgets differently than younger working adults, spending a larger share of their income on medical and housing costs which, in many years, tend to rise faster than overall inflation.
The COLA also doesn’t reflect cost increases in Medicare premiums and other rapidly growing Medicare costs. Research for The Senior Citizens League has found that Medicare Part B premiums are one of the fastest growing costs in retirement. Medicare Part B premiums, which are automatically deducted from Social Security checks, often consume most, or even all, of the COLA increase. Social Security recipients who have contacted The Senior Citizens League overwhelming feel that a higher COLA would be long overdue, saying that the COLA doesn’t come close to keeping up with their actual cost increases.
When prices rise rapidly at the same time that retirees are receiving a very low COLA, as is the case in 2021, this shortfall can produce long-term impacts on retirement income and even health when retired households without adequate retirement savings run short of cash before the month is over. According to Johnson, “in email after email, we are hearing that people are cutting their spending on prescriptions and groceries because that’s the last things they have left to cut”.
Despite these setbacks, with 1.2 million supporters, The Senior Citizens League continues working to try and strengthen Social Security benefits as well as the COLA.