SSI, SSDI, VA Raise in Monthly Benefits Coming in 2022

When it comes to Social Security benefits increases and how much of a raise you can expect next year, you’ll want to pay the closest attention to the results of the annual cost of living adjustment or COLA. You can think of COLA as the balancing amount that Social Security's more than 65 million beneficiaries receive nearly every year. Now the reason I say balancing amount is because it's not technically considered a raise. A raise would be a no-strings attached increase in benefits for purposes of improving the economic welfare of seniors. However, the COLA is more accurately described as being extra money designed to help the program's recipients get ahead. Rather, it's a boost aimed at bumping up payouts to match the inflation beneficiaries have contended with over the past year. As the prices for goods and services increase, the benefits paid to retired workers, long-term disabled people, and survivors of deceased workers should also rise accordingly.

Since 1975, Social Security's COLA has been tethered to the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. This index tracks a predetermined basket of goods and services, and includes eight major spending categories, with dozens upon dozens of subcategories, where each category contains its own relative weighting. Ultimately, the CPI-W can be boiled down to a neat and tidy single number that can be compared to the previous year's reading to determine if prices are rising, as in the case of inflation, or falling, as in the case of deflation.

In the case of Social Security, only the CPI-W readings from the third quarter, July through September, are used to determine the following year's COLA. And while the other nine months can help identify trends, they have no bearing on the final announced COLA. If the average CPI-W reading from quarter 3 in the current year is higher than the average CPI-W reading from quarter 3 of the previous year, beneficiaries will receive a raise commensurate with the percentage increase, rounded to the nearest tenth of a percent. For 2022, nearly all current Social Security beneficiaries will be looking at their largest benefit increase in history. Based on CPI-W data for July and August, The Senior Citizens League, a nonpartisan advocacy group for seniors, predicts the COLA for the upcoming year will likely come in at about 6%. Therefore, this means monthly benefits would rise by 6% come January 2022. So for the average retired worker, who's expected to be receiving $1,568 a month by December, a 6% COLA would translate to a roughly $94 monthly bump in benefits.

Now the last time Social Security recipients saw a COLA of 6% or higher was all the way back in 1983, when the COLA passed along for that year was 7.4%. So unless you were netting a payout from Social Security 39 years ago, this should be the biggest raise ever for its 65 million-plus recipients. But there's a catch. The grim reality is that most of the program's recipients aren't going to see much or any of this increase, as higher prices for a variety of goods and services eat up their payout boost. For example, the Congressional Research Service estimates Medicare Part B monthly premiums will rise from $148.50 in 2021 to $157.70 per month in 2022. This equates to a 6.2% increase, which is even higher than the predicted COLA by the Senior’s Citizen’s League. Between 2000 and 2020, the average annual Medicare Part B premium hike has been 5.9%, compared to an average Social Security COLA of 2.2% over the same time frame. And that's not all...

According to Bureau of Labor Statistics inflation data from August, a number of other key categories in the Consumer Price Index for all Urban Consumers (or CPI-U) show signs of higher inflation. The CPI-U is a similar financial measure to the CPI-W. In August, the CPI-U showed shelter inflation up 2.8% over the trailing 12 months, food inflation up 3.7%, and electricity up 5.2%. While used car inflation may not be affecting Social Security's retired workers, shelter, food, and electricity come into play as everyone needs a roof over their heads, food on their tables, and electricity in their homes.

These figures suggest a lot of recipients will see most or all of their payout boost in 2022 disappear. However, we have seen recent support in Congress for immediate help for seniors such as a final round of $1400 checks for Social Security beneficiaries, as well a push to bring SSI benefits up to at least the Federal poverty level. So we will essentially just have to be patient for the time being, and observe over the next few months if those benefits end up panning out.

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