How big will the social security cost of living adjustment be for 2022? – Community News
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How big will the social security cost of living adjustment be for 2022?

The pain of inflation is often hardest on the budgets of fixed income retirees. The only bright light from the recent spike in the consumer price index is the potential for a more significant adjustment in Social Security’s cost of living (COLA) this year. Estimates of the Social Security COLA in 2021 (for 2022) are between 5.3 and 6.1%. We have not seen an adjustment in the cost of living at this level since 2009.

The 2021 Social Security cost of living adjustment will not start until January 2022. So retirees can see their budgets getting tight over the next six months. Rents skyrocket; groceries cost more, real estate prices have gone crazy, not to mention health care and long-term care.

Social Security’s COLA estimate of 5.3% was calculated by The Senior Citizens League, a non-partisan senior citizen group, and based on data on the Bureau of Labor Statistics’ consumer price index through May. In June, the group updated its estimate to 6.1%, which would be the largest Social Security COLA since 1983.

The last time a Social Security cost-of-living adjustment exceeded five percent was in 2009. Sadly, that jump in benefits was followed by two years with no increase in Social Security benefits. The 2020 Social Security COLA increased SS benefits for 2021 by just 1.3%.

The Social Security Administration typically announces the annual COLA Social Security rate in the month of October. The SS COLA is based on the average inflation rate over the previous three months. Depending on who you ask, we could see an acceleration in inflation, or price pressures could ease. Don’t go out and make big spending choices based on a potentially high Social Security COLA. I am optimistic that inflation will return to normal levels in the long run. In the short term there is so much pent-up demand (partly due to sitting at home during COVID); therefore, in many parts of the economy, prices will most likely continue to rise.

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How Much Will Social Security Benefits Increase?

The amount your Social Security check will increase is based on a combination of your underlying benefit and Social Security’s COLA. Assuming the 2022 Social Security cost adjustment is at the 6.1% level and you receive the maximum Social Security benefit of $3,895, you would get an additional $237.60 per month. This would represent an increase of $2,851.14 per year.

The jump in benefits will be slightly more modest for those receiving the average Social Security benefit in 2021. Social Security benefits averaged just $1,543 per month in 2021. Again, assuming an SS COLA of 6.1%, you could see your retirement benefits increase by $94.12 per month. If you live on a steady income, that extra $1,129.48 can go a long way.

For those of you still working, make sure you have another retirement income to maintain your standard of living. Even with the maximum Social Security benefit, you will have a hard time keeping your standard of living from Social Security alone. Work with a trusted financial planner to determine the optimal time to claim Social Security and maximize your benefits.

Currently, 69 million Americans are collecting Social Security benefits. So a significant increase in the cost of living adjustment to Social Security will be huge for the budgets of many retirees.