...

Why Inflation's 6% Cost-of-Living Increase to Social Security Could Be a Double-Edged Sword




mphillips007 / Getty Images/iStockphoto
mphillips007 / Getty Images/iStockphoto  

Social Security benefits are getting a boost for 2022, potentially the biggest bump in the last 40 years. While the annual increase could be as high as 6.2% due to inflation, that monthly check may not go as far as you think.

See: How Much Can the Average Senior Citizen Expect To Benefit From Social Security?
Learn: Congress Reintroduces Bill to Keep Social Security Recipients Out of Poverty

Social Security's cost-of-living adjustment (COLA), which is calculated each year by using the Consumer Price Index for Urban Wage Earners and Clerical Workers, will make the calculation for 2022 based on data through the third quarter, according to CNBC. AARP also noted that the Social Security Administration typically announces the amount of the annual adjustment in October. The increase in benefits typically goes into effect in January.

While a 6% increase may seem substantial, it doesn't necessarily mean a bigger income. "Everything is 6% more expensive these days and is only the minimum needed to maintain the purchasing power that you've had all along," Patrick Hubbard, research associate at the Center for Retirement Research at Boston College, told CNBC.

Economy Explained: Social Security: Understanding the Basics

Two other factors that are likely to reduce the value of that increase are Medicare Part B premiums and taxes, according to research from the Center for Retirement Research. These factors also increase every year and Part B premium payments are usually deducted from Social Security beneficiaries' monthly checks. The amount someone pays for Medicare Part B depends on their income. In 2021, the monthly premium is $148.50 for single individuals with up to $88,000 in income and married couples with up to $176,000. CNBC also mentioned that from 2000 to 2020, Social Security benefits had an average annual increase of 2.2%, while Medicare Part B premiums went up by 5.9%.

"There is this increase in the benefit, but because it's eroded by Medicare premiums, it's not nearly fast enough to keep up with what inflation would be," Hubbard clarified to CNBC.

Discover: 10 Reasons You Should Claim Social Security Early
Find: Key Points COVID-19 Long-Haulers Need to Know About Applying for Social Security

Rising prices in 2021 are another factor contributing to higher COLA estimates. The Labor Department reported earlier this month that July consumer prices were up 5.4% year-over-year. "Higher prices reflect the disarray caused by the pandemic," said Mark Zandi, chief economist at Moody's Analytics, according to AARP. He went on to explain that it's expected that the inflation rate will decline to about 2% in 2022 as supply and demand even out, making the potential 6.2% increase to COLA the exception and not the rule.

  • What Money Topics Do You Want Covered: Ask the Financially Savvy Female

  • 5 Things Most Americans Don't Know About Social Security

  • Nominate Your Favorite Small Business To Be Featured on GOBankingRates

  • The Hidden Costs of Education at Every Level

Last updated: August 25, 2021

This article originally appeared on GOBankingRates.com: Why Inflation's 6% Cost-of-Living Increase to Social Security Could Be a Double-Edged Sword

COMMENTS

More Related News

11 Social Security Mistakes That Can Cost You a Fortune
11 Social Security Mistakes That Can Cost You a Fortune

If you want to retire comfortably, then you need to start planning now. By understanding how to maximize your Social Security benefits, you won't have to...

10 Reasons You Should Claim Social Security Early
10 Reasons You Should Claim Social Security Early

Your retirement planning likely includes getting income from the Social Security Administration, but when you start collecting Social Security benefits can...

Social Security Benefits Might Get Cut Early - What Does It Mean for You?
Social Security Benefits Might Get Cut Early - What Does It Mean for You?

Last week's news that Social Security benefits could be slashed sooner than expected set off alarm bells for Americans whose retirement plans have already...

Social Security Just Got Its Biggest Bump Ever - Are Rising Food Prices Covered?
Social Security Just Got Its Biggest Bump Ever - Are Rising Food Prices Covered?

The Social Security Administration announced this week that Social Security and Supplemental Security Income benefits for 2022 will be increased 5.9% to help...

Social Security Eligibility: What It Takes to Receive Max Monthly $3,895
Social Security Eligibility: What It Takes to Receive Max Monthly $3,895

For many Americans, social security benefits are a major source of income after retirement. In 2021, an average of 65 million Americans will receive monthly ...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Economy