The increase affects the household budgets of about one in five Americans, nearly 70 million people, including Social Security recipients and disabled veterans.
Millions of pensioners subject to social security contributions will receive a 5.9% increase in performance for 2022. The largest cost of living adjustment in 39 years follows a surge in inflation as the economy struggles to shake off the effects of the coronavirus pandemic.
The COLA, as it is commonly known, was estimated by the Social Security Agency as of Wednesday to be $ 92 per month for the average retired worker. This marks an abrupt break from a long inflationary slump where the cost of living has been adjusted averaging just 1.65% per year over the past 10 years.
With the increase, the average Social Security payment for a retired worker will be $ 1,657 per month for the next year. A typical couple’s performance would increase by $ 154 to $ 2,753 per month.
“It’s pretty quick,” said retiree Cliff Rumsey of the cost of living increases he’s seen. After a career in sales at a leading steel manufacturer, Rumsey lives near Hilton Head Island, South Carolina. He takes care of his wife, Judy, who is nearly 60 and has advanced Alzheimer’s disease at home. Since the coronavirus pandemic, Rumsey said he has seen increases in food prices, wages for nurses who occasionally spell him, and personal care products for Judy, not to mention energy bills.
COLA affects the household budget of about one in five Americans. This includes social security recipients, disabled veterans, and federal retirees, nearly 70 million people in total. For baby boomers who have retired within the last 15 years, this will be the biggest increase they have ever seen.
“It will be welcome,” said Mary Johnson, an analyst of the bipartisan advocacy group for the Senior Citizens League. “But what we hear is that even with COLA, purchasing power is still being reduced because the price increases continue to rise.”
Policy makers say COLA was designed as a safeguard to protect social security benefits against loss of purchasing power in an ever-changing economy, rather than as a wage increase for retirees. Around half of seniors live in households where social security benefits represent at least 50% of their income, and a quarter depend on their monthly payment for all or almost all of their income.
“Regardless of the size of the COLA, you never want to belittle the importance of the COLA,” said pension policy expert Charles Blahous, a former public trustee who helps oversee Social Security and Medicare finances. “What people can buy is very much influenced by the number that comes out. In many cases we talk about the essentials of life. “
This year’s Social Security Trustees are reporting heightened warnings about the program’s long-term financial stability, but little talk of fixes in Congress as legislature’s attention is caught by President Joe Biden’s massive domestic agenda legislation and partisan machinations over national debt. Social security cannot be addressed through the budget reconciliation process that the Democrats are trying to use to deliver on Biden’s promises.
But the turnaround in social security will come, said Rep. John Larson, D-Conn., Chairman of the House Social Security Subcommittee and author of laws to correct looming shortfalls that would mean the program fails in less than 15 years would be able to pay the full benefits. His bill would increase wage taxes while changing the COLA formula to give more weight to health care spending and other costs that place heavier burdens on the elderly. Larson said he intends to move forward next year.
“This one-off shot from COLA is not the antidote,” he said.
Although Biden’s domestic package includes a major expansion of Medicare to include dental, hearing and visual aids, Larson said he heard from voters that seniors feel neglected by the Democrats.
“Town halls and tele-town halls say, ‘We’re really happy with what you did with the child tax deduction, but what about us?'” Added Larson. “This is a very important constituency in an intermediate election.”
The COLA is only part of the annual financial equation for seniors. An announcement of Medicare’s Part B premium for outpatient care is expected shortly. It is usually an increase, so at least a portion of any increase in social security is used for health care. The Part B premium is now $ 148.50 per month, and the Medicare Trustee report estimates an increase of $ 10 in 2022.
Economist Marilyn Moon, who also served as the public trustee for Social Security and Medicare, said she believes the current surge in inflation is an adjustment to very unusual economic circumstances and that the price-reluctance pattern will reassert itself over time.
“I would think there will be an increase this year that you won’t see in the future,” said Moon.
Policy makers should not delay work on pension programs.
“We’re at the point where people don’t respond to political needs until they feel desperate, and both Social Security and Medicare are programs that benefit from long-term planning and more short-term machinations,” she said .