The 69 million Americans who collect Social Security are on track to see the biggest rise in the cost of living since 1983, with a senior advocacy group forecasting a 6.1% increase in benefits due to rising inflation.
The bad news: Recipients will have to wait for that bump because the Social Security Administration only adjusts its payments once a year, starting with the December benefits paid in January. That means seniors and other Social Security beneficiaries wouldn’t receive a cost of living adjustment (COLA) until January 2022.
Meanwhile prices foruntil at a time when Social Security recipients received one of the leanest COLA adjustments in recent years — a 1.3% increase for 2021. As the pandemic subsides, a rapid reopening of the economy is fueling pent-up spending on goods and services in many cases these remain scarce, causing inflation to rise compared to a year earlier.
Based on June inflation figures, Social Security recipients next year will see the largest COLA increase since 1983, when a 7.4% increase took effect, according to a new forecast from the Senior Citizens League, an impartial group that focuses on issues related to the elderly. people.
One meal a day
Some seniors in the country are already struggling with higher inflation, which is affecting the purchasing power of their monthly benefits, said Mary Johnson, social security and health care policy analyst at the Senior Citizens League. A retiree wrote to her group to say they had to cut back on eating one meal a day because of increased costs for medical care and other expenses, Johnson noted.
The Social Security Administration will announce its annual COLA adjustment in October, which is based on the average inflation rate over the previous three months. Certainly, inflation could decline during the summer and early fall, potentially resulting in a lower COLA rate for 2022 than the Senior Citizens League predicts.
Everything, including petrol at the pump, rental cars and both new and used cars. In the index used by the Social Security Administration to determine the annual COLA – the consumer price index for urban wage earners and white-collar workers – gasoline is heavily weighted.
Other items driving inflation this year include clothing, which is up nearly 5% from a year earlier, and electricity costs, which are up more than 6%, according to the latest government data. One area where people are seeing some relief is medical care, which is up just 1% from a year earlier.
But in the longer term, health care costs have risen faster than inflation, a problem that has long plagued retirees because they tend to spend more on health care than younger people. Some proponents say a more accurate reflection of retiree spending is the so-called consumer price index for the elderly, which weighs more heavily on health care.
Inflation from the 1970s?
Economists predict inflation could slow later this year, but that partly depends on the easing of supply bottlenecks, according to Oxford Economics.
“The major concern is that today’s high inflation is being built into consumer and business expectations, leading to higher inflation in the long run, as happened in the 1970s,” Gus Faucher, chief economist at PNC Financial Services Group, said in a statement. a research note. .
But that “dazzling” inflation might not last long, as only a handful of products are responsible for most of the higher prices, including used cars and gasoline. And prices were weak a year earlier when much of the U.S. economy was still closed due to the pandemic, which could lead to over-inflation, Faucher added.
Still, Social Security benefits had lost purchasing power even before this year’s higher inflation, according to a report by the Senior Citizens League. Government pension benefits have lost about a third of their purchasing power in the two decades since 2000, the group found. That’s partly because health care costs like Medicare premiums are rising much faster than inflation.
Some attempts have been made to overhaul the way COLAs are calculated. Representative John Garamendi, a Democrat from California, introduced a bill this month proposing the Social Security Administration to consider another measure of inflation that better reflects seniors’ actual spending.
Under the bill, the SSA would be required to use the consumer price index for the elderly, which increased by an average of 3.1% per year from 1982 to 2011, compared to the 2.9% increase for the index currently used.