This month, retirees across the country are getting tighter Social Security checks. These larger controls will continue throughout the year and are the result of a cost of living (COLA) adjustment of 5.9% – the largest in decades.
But while you may be happy that more money is being deposited into your bank account by the Social Security Administration, don’t get too excited when that first check comes and the amount appears to be larger on paper.
Here’s Why The Big Social Security Increase This Year Isn’t Something To Be Excited About
While it may seem nice to get more money from the Social Security Administration, it’s not the actual amount of your benefits that matters — it’s what you can buy with it that counts. And unfortunately, despite the huge increase that retirees are getting, their purchasing power could probably fall this year.
See, Social Security cost of living adjustments are calculated based on changes in the consumer price index for urban wage earners and white-collar workers. (CPI-W). The increase is determined based on how much CPI-W data in July, August and September makes prices rise compared to the same three months in the previous year.
When the 2022 COLA was calculated, it showed a price increase of 5.9% year over year – hence the 5.9% increase seniors received. The only problem is that that calculation was based on a snapshot and inflation has continued to rise ever since.
More recently, another price index – the Consumer Price Index for All Urban Consumers (CPI-U) – showed that prices rose 6.8% in November 2021 compared to the previous year. And in December this will probably rise to 7%.
If you get a 5.9% raise and prices go up by 7%, your “advantage” basically gives you no more to spend. Instead you end up to lose land because your income doesn’t rise as fast as prices rise. You can’t buy anymore – your money won’t go as far as it did in the past.
How to deal with rising inflation?
Undoubtedly, it’s bad news that your big increase in Social Security benefits isn’t actually an increase at all. But as long as you recognize this reality, you can take steps to mitigate the effects of inflation and avoid the financial hardships that often come from dealing with rising prices on a fixed income.
Some of the different steps you can take to deal with inflation include:
- Postpone major purchases: Now if you don’t have to buy a car, do your home improvement projects, or make other major purchases, then don’t. Wait for the cost of goods and services to stabilize. This is especially important if the items you would buy are affected by the current ongoing supply chain crises or chip shortages.
- Make sure you have the right investment mix: A solid investment portfolio can help you avoid losing ground as you can achieve returns that will hopefully beat inflation.
- Look for replacements for expensive items: If a particular food, such as beef, is seeing prices skyrocket, consider switching to cheaper products, such as a more plant-based diet.
- Keep energy costs low: Insulating your home, adjusting your thermostat, and making sure you turn off the lights and do high-power activities during off-peak hours can help keep energy costs down.
By taking these steps, hopefully you can stay within your budget — especially with your bigger Social Security increase — even if prices continue to rise.