Inflation in the United States has been above normal compared with the past ten years, as the economy comes surging back from the depths of the pandemic-induced economic crisis. This higher than usual inflation is especially painful for those that live on a fixed income such as Social Security beneficiaries.
Fortunately for them, the amount that the Social Security Administration pays out monthly is one of the few types of income in retirement that are adjusted for inflation. However, that doesn’t mean that the 2022 annual Cost-Of-Living-Adjustment (COLA) increase to benefits for retired and disabled Social Security recipients will be enough to patch the hole that has been gouged in household finances.
How is the COLA calculated?
The change in COLA, if any, is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) which are published monthly by the US Bureau of Labor Statistics. This an official measure of the monthly price change of a basket of goods and services. The Social Security Administration uses the monthly average from the third quarter, July, August and September, of the last year a COLA was determined compared to the third quarter of the current year.
The US Bureau of Labor Statistics will release the Consumer Price Index data for September 2021, the last month of the third quarter, 13 October at 8:30 am ET. Last year, the Social Security Administration released the 2021 COLA the same day shortly after that announcement. So it could be expected the final 2022 COLA will be known Wednesday 13 October 2021. However, those who don’t wish to be waiting around for the announcement can get the news sent directly to them.
Since December 2020, the Social Security Administration has made it easier for beneficiaries to receive information about the COLA. Those who use the My Social Security online service can sign up to receive a message regarding the change in COLA. To receive free notifications from the Social Security Administration, log into your account and under “Message Center Preferences” you can choose to receive an email or text with the latest information.
Estimates for the COLA 2022 increase
Inflation in 2021 has been at its highest level since the 1980s. Back then the COLA hit a record increasing 14.3 percent in 1980, but over the ensuing decades the increases have become more modest. The average annual COLA over the past ten years was 1.7 percent, but 2022 could be the highest since 1982 surpassing the last big spike of 5.8 percent in 2008.
Although the COLA 2022 isn’t expected to reach the 7.4 percent that was hit in 1982, the Senior Citizens League, a nonpartisan senior group, projected the COLA for 2022 will be up to 6.1 percent. If the COLA 2022 is as predicted, the new average would be $1,628.
The year-on-year CPI-W cooled slightly from the 6 percent in July to 5.8 percent August, even so inflation is expected to remain abnormally high before it drops back down to around 2 percent next year. So, even though for those receiving old-age and disability benefits it might not cover the price increases by the time it takes effect at the end of the year.