Social Security Gets a Cost-of-Living Adjustment: Will It Be Enough to Cover Your Retirement Expenses?
In this period of high inflation, Social Security recipients received welcome relief in the form of a cost-of-living adjustment, or COLA. Since 1975, the United States Social Security Administration (SSA) has periodically increased monthly benefit amounts to correspond with increasing inflation, and the COLA announced in October 2021 was the largest increase since the 1980s. At Crash Proof Retirement®, we know that millions of retirees across the country depend on Social Security to cover their day-to-day expenses, and while this COLA was one of the largest in history, we are wondering if it will be enough with respect to inflation and higher taxes. Here is our analysis of Social Security’s most recent cost-of-living adjustment, and our thoughts about whether it is going to be enough to provide a comfortable retirement in these tough economic conditions.
What’s in the COLA?
You may have noticed that the costs of goods and services has increased over the past year. The price of consumer goods, services, transportation, medical care, and more are all incorporated into a measure known as the Consumer Price Index (CPI). Based on the CPI from the third quarter of 2020 to the third quarter of 2021, the SSA settled on a 5.9% increase for Social Security benefits. Starting December 30th, 2021, benefit payouts will increase for approximately 8 million Supplemental Security Income (SSI) recipients, and in January 2022, approximately 70 million Social Security recipients will have those increases reflected in their monthly benefits.
Inflation and the Social Security COLA
While the COLA for 2022 is one of the largest in recent history, it will only amount to an average monthly increase of $92 over last year’s average, or an additional $1,104 annually. That will bump up the average Social Security recipient’s yearly benefit to an estimated $19,884. With increased consumer prices across the board, that may not be enough for the average retiree to make ends meet.
Inflation rates were relatively stable from 2016 to March 2021, hovering between 1-3% during that period. As labor and supply shortages related to the COVID-19 pandemic began to take a toll on the global supply chain, the inflation rate quickly shot up in April 2021, reaching 5% in May and holding steady ever since. As a result, retirees living on Social Security took a big hit to their buying power. With inflation rates higher than 5% throughout the summer and heading into the third quarter of 2021, a 5.9% increase to Social Security benefits may not be enough to offset increased prices, especially as economists and government officials anticipate high inflation to last well into 2022. The Federal Reserve announced measures to get inflation under control, but if those measures are not effective, the inflation rate could easily jump above 6%.
How Will the COLA Affect Your Taxes?
The purchasing power of Social Security recipients is already under threat from inflation; increased taxation could erode even more of that power. Many Social Security recipients who have other sources of income are required to pay federal income tax on their benefits. An increased benefit amount could mean increased taxation, and while that amount may be relatively small, every dollar counts for retirees living on a fixed income. With the combined power of inflation and increased taxation, the buying power of a monthly $92 bonus each month could end up being completely erased.
Planning for Your Future in Retirement
It seems like increased inflation rates and consumer prices will be sticking around at least for another year. If you are currently retired, or you are planning to retire soon it is important to create a plan to best utilize your Social Security benefits. Recipients could see another bump in 2022 depending on how long inflation sticks around after the Fed implements a planned series of interest rate increases over the next 4 years, as well as an end to the quantitative easing program that has been propping up the stock market since the COVID crash. With all these factors combined, retirees could be in for a period of economic instability that could drain retirement savings and put the stability of the county at risk.
Luckily, you can shield your assets from stock market crashes and inflation. Call 800-722-9728 or visit crashproofretirement.com to find out more about how the exclusive Crash Proof Retirement® System can protect your nest egg from the dangers of inflation and schedule your free financial checkup. The proprietary Crash Proof Vehicles have protected the retirement assets of more than 5,000 consumers and our team of licensed retirement phase experts can do the same for you. You don’t have to let inflation and market volatility eat away at your retirement savings. Contact Crash Proof Retirement® and find out how you can safeguard your nest egg and enjoy peace of mind during your golden years.