Updated: Sep 27, 2021
Hello everyone! Let’s get into this Social Security update, where we will discuss the projected 6.2% cost of living adjustment increase for 2022, as well as some recent changes that may begin to take effect come the date of September 14th this year. Based on fresh new data for July, it’s starting to look like next year’s annual Social Security cost-of-living adjustment may be the highest in nearly four decades.
The new, updated estimates from The Senior Citizens League show that the annual COLA could be 6.2% next year, based on July Consumer Price Index data released August 11th by the Bureau of Labor Statistics. According to the BLS’s data, the Consumer Price Index for All Urban Consumers (or CPI-U) increased 0.5% in July on a seasonally adjusted basis after rising 0.9% in June. Over the last 12 months, the all-items index is up 5.4% before seasonal adjustment. In addition, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)—which is used as a measure to track inflation, and to calculate the Social Security COLA for retirees, has increased 6% over the last 12 months.
For the month of July, the index rose 0.5% prior to seasonal adjustment. And according to Mary Johnson, a Social Security policy analyst for The Senior Citizens League, “The estimate is significant because the COLA is based on the average of the July, August and September CPI data. With one third of the data needed to calculate the COLA already in, it increasingly appears that the COLA for 2022 will be the highest paid since 1983 when it was 7.4%.”
So basically the way it works is, the only 3 months that are used to calculate the COLA are July, August, and September. And each release provides data for the previous month. Therefore, so far we’ve only received official data for July, which is just one of the three months used in this calculation. And with no sign of inflation slowing down, that should put the COLA at an even higher number than previously estimated. Now 6.2% is a lot higher than we’ve seen in recent years.
Looking at the raw data, the Social Security COLA for monthly Social Security and SSI benefits increased by 1.3% in 2021, 1.6% in 2020 and 2.8% in 2019. Social Security benefits are one of the few types of income in retirement adjusted for inflation. Last month, the Senior’s Citizen’s League predicted that Social Security recipients may get a 6.1% COLA in 2022, and in May, the organization predicted that recipients may get a 4.7% COLA, which would have actually been the highest increase since 2009. Each October in the middle of the month, the Social Security Administration announces the annual COLA for the year, which provides an early precursor of what can be expected for COLA's on retirement plan contribution and benefit limits.
So what exactly is driving the increase? The Seniors Citizen’s League explains that, under current law, Social Security benefits are adjusted using the CPI-W. That index measures inflation experienced by younger working adults, but it does not include the spending patterns of households with retirees age 62 and older. The organization notes, for instance, that the CPI-W is weighted more heavily for gasoline, which is up 41.8% over the past 12 months and thus driving the steep rise in the COLA. In 2020 and most of the past 12 years, however, gasoline prices have been in steep decline, so COLA's have averaged just 1.4%. In advocating for the use of a different index, The Seniors Citizen’s League contends that retired and disabled Social Security beneficiaries spend their money differently than younger workers, spending more on health care and housing.
The organization further notes that in recent years those categories have increased more rapidly than gasoline but haven’t shown up as higher COLA's because the CPI-W is weighted less heavily for them. Legislation that would tie COLA's to an index that measures inflation experienced by older households, the Consumer Price Index for the Elderly (or CPI-E), was reintroduced recently. Typically, the CPI-E tends to grow more quickly that the CPI-W in most, but not every year. So in summary, the CPI for August 2021 is scheduled to be released on September 14th at exactly 8:30am Eastern Time, which will provide even more clarity on what the 2022 COLA will be. Until then, that’s all I had for you regarding the upcoming COLA release for 2022. I will be sure to provide further updates as we edge further into the month of September. Stay safe, stay hustling, and I will talk to you guys again soon!