Inflation concerns dampen potential impact of large COLA
increase in 2022.
By Alan Goforth | October 13, 2021
at 12:48 PM
Social Security recipients are looking forward to the largest
cost of living adjustment in four decades in January. The tradeoff, however, is
that they may need that added income to counter rising inflation.
“COLAs are intended to protect the buying power of Social
Security benefits but, according to consumer price data through July of 2021,
Social Security benefits have lost nearly one-third of their buying power and
32 percent since 2000, about the length of a typical retirement,” said Mary
Johnson, Social Security and Medicare policy analyst for The Senior Citizens League.
“Even worse, it appears that inflation is not done with us yet,
and the buying power of Social Security benefits may continue to erode into
2022.”
The Social Security Administration announced that the COLA in
2022 will be 5.9 percent, compared to an average of 1.4 percent over the past
12 years.
The COLA in 2021 was 1.3 percent and raised average monthly
benefits by about $20. The 2022 COLA will increase an average monthly
retirement benefit of $1,565 to roughly $1,657, an increase of $92.
Although the increase is welcome, Social Security recipients say
that years of low COLAs in the past made it next to impossible to cope with the
rampant inflation of 2021, because COLAs haven’t kept pace with some of the
fastest-growing costs of older households.
“Over the past 21 years, COLAs have raised Social Security
benefits by 55 percent, but housing costs rose nearly 118 percent and
health-care costs rose 145 percent over the same period,” Johnson said. “These
two categories in particular are not adequately accounted for in the COLA.”
Related: 10 fastest-rising costs for older
Americans since 2000
Johnson compiled a list of spending categories that are likely
to be the biggest challenges for older households in 2022:
·
Food. The USDA estimates that food-at-home
prices are expected to increase between 1.5 and 2.5 percent, and
food-away-from-home prices are expected to increase between 3 and 4 percent.
·
Rental
housing. Rental increases
appear to be coming in higher than normal in 2022 (7 percent and higher) in
reaction to the expiration of eviction moratoriums that forced normal rent
increases to temporarily be halted.
·
Owner
housing. Mortgage rates
are expected to rise in reaction to higher new home prices, the costs of
building and materials, and rising interest rates. Higher prices also will mean
higher local real estate taxes and insurance costs.
·
Home
heating. With rising
demand and shrinking inventories, the cost of heating a home with oil and
natural gas this winter is expected to climb by about 21 percent to 25 percent.
·
Drugs. The Centers for Medicare & Medicaid
Services estimates that prescription drug plan premiums will increase almost 5
percent in 2022, and the Part D out-of-pocket threshold before reaching the
catastrophic phase of coverage is growing by 7.6 percent.
Learn more:
·
Social Security: The great
equalizer?
·
How auto-IRAs can help increase
lifetime Social Security benefits
·
Can you spot the Social Security claiming mistakes?
Check these out, too:
·
Social Security benefits in 2021: 5
states with the smallest checks, 5 with the biggest
·
3 Social Security changes coming in
2021
·
Social Security COLA fails to keep
up with rising costs of essential products and services
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