Social Security provides the sole reliable source of income for tens of millions of Americans in retirement, many of whom have little or no retirement savings. With the specter of inflation hitting seniors especially hard in their pocketbooks, many Social Security recipients are counting on getting bigger monthly benefit checks from the federal government to help make ends meet.
Social Security’s cost of living adjustments (COLAs) are a key feature of the program, and because of the higher inflationary pressures in the U.S. economy during 2021, retirees will be getting one of the largest COLAs in decades in at the start of the new year. Below, we’ll look at exactly how much retirees can expect their Social Security to go up in 2022 — and why for many, it still won’t be enough to provide them with the financial security they need.
The average American retiree’s Social Security payment
Because of inflation and wage increases, the average benefit for Social Security recipients typically goes up over time. That’s largely due to the way that the benefit formula calculates how much each person will receive, based on their work history and length of career.
However, the increase isn’t steady. Some years, the average goes up only by a small amount, while other years feature big boosts. Between 2012 and 2021, annual increases ranged from just $13 in 2016 to $57 in 2019.
Average Social Security Benefit for Retired Workers
However, 2022’s increase will be the biggest in decades. The $113 boost amounts to a 7.3% raise compared to 2021 levels. It comes primarily from the 5.9% COLA that will take effect in January, with the remainder of the increase resulting from the overall rise in average earnings that consistently boosts average benefits over time.
Not as helpful as you’d think
Obviously, having more money is better than not having more money for any retiree. However, no one should be thrilled at the factors that led to the increase in Social Security benefits for 2022.
First and foremost, seniors are paying more for the goods and services they need. The Bureau of Labor Statistics maintains an experimental CPI-E that’s geared toward Americans 62 and older, and it rose by 5.7% over the past 12 months. That’s the biggest annual increase since 1990.
Moreover, most retirees won’t see the full amount of the boost hit their bank accounts. Those who are on Medicare typically have monthly premiums for Part B medical coverage taken directly out of their Social Security checks. With Part B premiums soaring $21.60 per month in 2022 to $170.10, a sizable portion of increased benefits will simply disappear.
Don’t expect to splurge
Social Security COLAs can seem like found money, especially when you’re on a fixed income. But because of the higher prices that prompted bigger benefit checks, the purchasing power of your Social Security in 2022 might well go down. That makes it more important than ever to maintain financial discipline.
Meanwhile, for those who are still working, the latest from Social Security serves as a reminder of just how critical it is to set aside money for a retirement nest egg to supplement your federal benefits. With so much uncertainty, having that cushion can offer peace of mind that will make your golden years a lot more comfortable.
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