Social Security Benefits Set to Increase
Find out how much social security benefits are set to increase.
I’m sure you’ve noticed the cost of everything from food to gas to housing increased in 2021. With inflation forcing adjustments for most household budgets, the Social Security Administration announced a significant cost-of-living increase in the benefits that will be paid out to older Americans in 2022.
The monthly Social Security checks will get a 5.9% boost beginning in January, which is the largest cost-of-living increase in 40 years. For some perspective, the Social Security cost-of-living increase was just 1.3% in 2021 and has averaged 1.4% over the past ten years. The last time the increase exceeded 5% was in 2009 when there was a 5.8% bump.
The Federal benefit rates increase as cost-of-living goes up, as measured by the Department of Labor’s Consumer Price Index through the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The benefit increase is intended to offset the impact of inflation. In September, the annual inflation rate was measured at 5.9%.
There are about 65 million Americans, including retirees and disabled individuals, who receive Social Security. According to a fact sheet distributed by the Social Security Administration, the average recipient received $1,565 per month in 2021 and will receive $1,657 in 2022. For the average couple with both individuals receiving benefits, the monthly payment in 2021 was $2,599, and in 2022 it will be $2,753.
In addition, the maximum benefit for a worker retiring at full retirement age will increase from $3,148 per month to $3,345 per month. The maximum amount of a worker’s wages that will be subject to Social Security taxes will also increase from $142,800 to $147,000.
Social Security provides a significant portion of income for millions of Americans. According to the Social Security Administration, almost nine out of ten people age 65 and over received Social Security benefits as of the end of 2020. And among elderly beneficiaries, 37% of men and 42% of women receive 50% or more of their total income from Social Security benefits. Additionally, 12% of men and 15% of women receive 90% or more of their income from Social Security.
It’s not only retirees that rely on Social Security. Disabled workers and their dependents accounted for 13.1% of the benefits paid in 2020, and survivors of deceased workers received 11.7%. Many dependents of retirees, disabled workers, and spouses also rely on the benefits.
While the larger-than-normal increase will certainly help those receiving benefits, many fear that it’s not enough. Another complaint is that the formula used to calculate the cost-of-living increase is flawed. Most seniors have expenses that are significantly different than younger working Americans. Retirees typically spend less on things like gas and groceries, but their medical costs are much higher, and those costs typically outpace overall inflation.
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In a statement responding to the increase, AARP CEO Jo Ann Jenkins said, “Today’s announcement of a 5.9% COLA increase, the largest increase in four decades, is crucial for Social Security beneficiaries and their families as they try to keep up with rising costs. The guaranteed benefits provided by Social Security and the COLA increase are more crucial than ever as millions of Americans continue to face the health and economic impacts of the pandemic. Social Security is the largest source of retirement income for most Americans and provides nearly all income (90% or more) for one in four seniors.”
The statement from AARP also calls on policymakers to ensure the long-term sustainability of Social Security and urges congress to protect seniors from high drug prices while also improving coverage for dental, hearing, and vision coverage as part of Medicare.
Nancy Altman, President of Social Security Works shared similar sentiments in her statement: “After four decades of inadequate Social Security COLAs, beneficiaries are finally expected to receive one that more closely matches their rising costs. But large as it may appear on paper, it is not nearly enough for seniors and people with disabilities on fixed incomes to make ends meet.
“Social Security beneficiaries face substantial and rising health care costs, forcing too many to cut back on prescribed medication or go without food. While a more adequate COLA in 2022 is welcome, it is far from a solution to our nation’s retirement income crisis.
“To address that, as well as other challenges facing the nation, including the squeeze on working families and destabilizing income and wealth inequality, we need to expand Social Security. Moreover, we need to change the formula for calculating COLAs so that it accurately measures the rising expenses beneficiaries face every year, not just once every forty years. We also need to control health care costs, including the outrageous prices of prescription drugs.”
Cost of living adjustment (COLA) notices will be sent to benefit recipients in December. However, those who want to see their new benefit amount without waiting for the letter can log in to their My Social Security account. The COLA notice will be available in the Message Center in early December.
What to Do if the Increase to your Benefits Isn't Enough
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We've put together the following resources to help those who could use a few extra bucks.
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The opinions expressed in this article are for general information purposes only and are not intended to provide specific advice or recommendations about any investment product or security. This information is provided strictly as a means of education regarding the financial industry.