Next year’s cost of living (COLA) adjustment for Social Security — a precursor to what can be expected for retirement plan contribution and benefit limits — could be the highest since 2009.
According to estimates by The Senior Citizens League (TSCL), Social Security recipients could receive a COLA of 4.7% in 2022. Based on consumer price index data through March 2021, the study suggests the next COLA will be significantly higher in 2022 than the 1.3% COLA paid in 2021.
Findings in the organization’s “2021 Social Security Loss of Buying Power” study show a temporary improvement in the purchasing power of Social Security benefits, but an abrupt rise in inflation offset the temporary improvement. “While the lack of inflation in 2020 improved the purchasing power of Social Security benefits by two percentage points in January 2021 – from a loss of purchasing power of 30% to a loss of 28% – that improvement was completely offset by rising inflation in February and March. this year,” said Mary Johnson, Social Security policy analyst for TSCL.
Now in its 12e year, the study looks at 39 expenditures typical of people age 65 and older, comparing the price increase of these goods and services with the growth in annual COLAs. It found that consumer price data up to March 2021 indicate that Social Security benefits have lost another 30% of their purchasing power and “that the loss in purchasing power could grow more deeply in 2021, should current inflation trends continue,” Johnson added.
The organization notes that with such high levels of inflation volatility, this estimate could change several times before the COLA is announced in October 2021. The study further notes that since 2000, COLAs have increased Social Security benefits by a total of 55%, yet typically senior costs increased by 101.7% through March 2021. The average Social Security benefit in 2000 was $816 per month; that benefit grew to $1,262.40 in 2021 as a result of COLA increases.
But because the cost of retirees is rising at a much faster rate than the COLA, the study suggests that a Social Security benefit of $1,645.60 per month would be needed in 2020 to maintain the same level of purchasing power as it was in 2000.