The Social Security Administration said on October 13 that Social Security and Supplemental Social Security payments will be going up by 5.9% in 2022. Advocates for older Americans, however, caution that this won’t be enough to keep up with the inflation that many will be dealing with. This is a cost of living adjustment (COLA), and it is the largest increase since 1982. For reference, COLA increases over the past five years averaged just 1.6%.
Living off Social Security alone can be difficult. Consider working with a financial advisor to start planning for your retirement now.
Senior League Says This Increase Won’t Cut It
While this may be the biggest increase in nearly three decades, advocates for senior citizens say it still isn’t enough to deal with rising costs.
“COLAs are intended to protect the buying power of Social Security benefits but, according to consumer price data through July of 2021, Social Security benefits have lost nearly one-third of their buying power, 32 percent, since 2000, about the length of a typical retirement,” said Mary Johnson, Social Security and Medicare policy analyst for The Senior Citizens League, in a statement. “Even worse, it appears that inflation is not done with us yet, and the buying power of Social Security benefits may continue to erode into 2022.”
TSCL specifies a few areas in particular where risings costs have simply not been offset by COLA in recent years:
- Food. The USDA estimates that at-home costs for food will increase between 1.5% and 2.5% in 2022, with food-away-from-home costs going up between 3% and 4%.
- Rental housing. TSCL believes that rental housing could go up by 7% or more in 2022 as a response to the expiration of eviction moratoriums that were in place during the pandemic. This is higher than the standard 5% increase that exists in many leases.
- Home heating. The cost of heating a home with oil and natural gas could rise between 21% and 25% this winter, according to the U.S. Energy Information Administration.
- Drug Prices. The Centers of Medicare and Medicaid Services expects that prescription drug plan premiums could increase almost 5% in 2022. The Part D out-of-pocket threshold is going up 7.6% from $6,550 in 2021 to $7,050 in 2022.
With all of these price increases in mind, TSCL has a petition active advocating for a $1,400 stimulus check to all receiving Social Security Payments.
How Social Security COLA Works
Each year, the Social Security Administration announces cost-of-living adjustment (COLA) for all recipients of social security retirement benefits and Supplemental Security Income. Currently, the yearly increase is determined using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This figure determines the relative cost of goods and services and is calculated by the Bureau of Labor Statistics.
Earlier this year, a measure was introduced to use the Consumer Price Index for Elderly Consumers (CPI–E), which uses the same formulas and prices but weights them for the needs of people over 62. The idea is that the CPI-W underestimates the cost of things like healthcare and housing, which have a big impact on seniors.
Four Ways to Finance Retirement Beyond Social Security
The Bureau of Labor Statistics says the average American age 65 and older spent $48,872 in 2020. Social Security may only pay for a part of your retirement expenses. Therefore, it is always good to supplement those payments with extra savings. Here are four common ways to help you meet your retirement needs and goals.
Delay Social Security benefits until age 70. Depending on your birth year, full retirement age is between 65 and 67. However, if you choose to delay your retirement until age 70, you could boost your Social Security payments to get 132% of your monthly benefits.
Maximize IRA or 401(k) contributions. One-third of Americans are leaving free money on the table by saving below employee matches. With an employee match of a dollar-for-dollar rate up to 5%, a worker earning $100,000 annually could save $381,386 (with a 4% rate of return on savings) by age 66.
Guarantee another income stream with an annuity. This insurance product pays out the full amount of principal and interest over a specific time. And it can help you delay Social Security payments to maximize your benefits. Like many retirement plans, the money you put into an annuity will also grow tax-deferred until you make a qualified withdrawal (at which time it will be taxed as ordinary income).
Put money into a health savings account. There were 30 million HSA accounts in January 2021, adding up to a total of $82.2 billion invested. While HSAs let you invest money for medical expenses, they also reduce your taxable income and your money grows tax-free.
There will be a 5.9% increase to Social Security benefits in 2022, the biggest jump in nearly 30 years. Still, many think this won’t be enough for older Americans who rely on Social Security payments to keep up with the increasing costs of goods and services, with some expecting higher-than-average inflation. The Senior Citizen’s League notes that things like heating costs, healthcare and housing could be especially troublesome for seniors, and is advocating for a $1,400 stimulus check for all Social Security recipients.
Retirement Planning Tips
- Good planning is the key to a solid retirement foundation. A professional can help a lot. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you’re years away from hitting retirement age, it can be tough to imagine what you’re Social Security Payment will be. SmartAsset’s free Social Security calculator can give you an idea of what you’re check will look like using your age and salary information.
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