There’s Good News and Bad News for Social Security Retirees

Social Security retirees are facing some big financial changes in 2022. They got the largest Cost of Living Adjustment (COLA) in four decades, which means they’ll see Social Security provide more money each month.

However, there’s some good news and bad news about their benefits increase, which could affect how far their money goes over the course of the year.

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Here’s the bad news for seniors about their benefits bump

The bad news for retirees is that while they are getting the biggest benefits increase in four decades, the 5.9% raise they’ll receive in 2022 is still is likely to fall short of maintaining the buying power they enjoyed before.

The most recent data from the Consumer Price Index from December 2021 shows a 7% rise in inflation. Retirees’ COLA was calculated based on inflation data from July, August, and September of 2021. Since inflation has surged since then, their big raise still won’t provide enough extra money for seniors to maintain their standard of living, given how sharply prices have risen in such a short time.

The failure of the COLA to keep pace with rising inflation is not a recent trend. Other flaws in the calculation, including the use of a formula that doesn’t accurately reflect seniors’ most common expenditures, have resulted in benefits losing about 30% of their value since 2000.

There could be some good news on the horizon

While prices are going up on goods and services across the board, rising Medicare premiums were set to take an especially big bite out of seniors’ increased Social Security checks in 2022.

Most seniors have Medicare premiums withdrawn directly from their Social Security payments. Medicare premiums rose to $170.10 in 2022, up $21.60 from the $148.50 that retirees paid in 2021. With the typical senior getting a benefits bump of around $92, such a large Medicare premium increase would eat up a significant percentage of their increased benefit.

The good news is that it’s possible the big premium increase will be reassessed, and seniors will end up with a smaller price increase after all. HHS Secretary Xavier Becerra recently instructed Centers for Medicare and Medicaid Services to reconsider the large premium increase in light of falling prices on an Alzheimer’s drug.

If the premium increase ends up being smaller, retirees will have more take-home pay after Medicare costs are taken out. Their raise may stretch at least a little further in helping them keep up with rising costs.

The reality, however, is there’s no guarantee Medicare premiums will end up being reassessed. Even if seniors get this break, if inflation continues to surge, their benefits bump is still likely to fall far short of helping them to maintain their standard of living.

Retirees will need to look for some ways to readjust their budget, so rising prices don’t leave them in debt or leave them forced to withdraw too much from investment accounts and risk running short of funds too soon. Seniors also need to make certain they have the right investment mix as a portfolio that’s too conservative could lead to more lost ground relative to the value of inflation.

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