2022’s Social Security Raise Is Already Failing Seniors — Here’s Why

For years, seniors on Social Security have bemoaned the fact that their annual cost-of-living adjustments, or COLAs, have been stingy. But this year, seniors got a pleasant surprise.

Last October, it was announced that seniors would be getting a 5.9% COLA for 2022, representing their most generous raise in decades. And following that news, many seniors no doubt were able to breathe a sigh of relief.

But while a 5.9% COLA may seem like something to celebrate, the reality is that it’s already letting seniors down. Here’s why.

Even a big raise can’t keep pace with inflation

Social Security raises are determined based on third-quarter data from the Consumer Price Index, which measures fluctuations in the cost of consumer goods. This year’s 5.9% COLA is based on data collected between July and September of 2021, when inflation levels had already started to soar.

But inflation has only climbed further since then. In December, the Consumer Price Index was up 7% on an annual basis, representing its highest spike since 1982. This means that, even though we’re only in January, seniors on Social Security are already at a disadvantage with regard to their general buying power, since their raise isn’t enough to keep pace with current levels of inflation.

Compounding the problem is the fact that many seniors won’t get that 5.9% raise in full because seniors on Social Security who are also enrolled in Medicare Part B have those premiums deducted from their benefits. This year, Medicare Part B premiums rose a lot, so that increase will eat into seniors’ COLA, as it’s done in the past.

The importance of personal savings

Seniors today who are heavily reliant on Social Security may be struggling financially, even with higher benefits to start off the year. That’s why it’s important for future retirees to recognize the limited buying power Social Security offers.

As a general rule, Social Security will replace about 40% of the typical worker’s pre-retirement earnings. But most seniors need roughly twice that level of income to keep up with rising living costs and maintain a reasonable standard of living.

That’s why it’s so important to save independently for retirement, whether in an IRA, a 401(k) plan, or another dedicated long-term savings account. Building a nest egg could spell the difference between covering retirement expenses with ease or struggling to make ends meet.

Even when inflation levels aren’t as high as they are today, Social Security still does a poor job helping seniors maintain their buying power. So the best way to compensate is to have income outside of those benefits to fall back on.

It’s too soon to know how long rampant inflation will last. Some experts warn that the cost of consumer goods hasn’t even peaked yet. If prices don’t start to come down in the near term, 2022 could end up being a very tough year for Social Security beneficiaries, despite the fact that they’re sitting on the largest raise they’ve had in a long time.

The $16,728 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

The Motley Fool has a disclosure policy.