By Noah Rothstein
Inflationary fears have led social security recipients to worry about the cost-of-living adjustments (COLA) to their monthly checks, and this year might see one of the most significant increases yet.
According to a new estimate, the Social Security cost-of-living adjustment for 2022 could be 6.1% due to inflation.
That would be the largest increase since 1983, according to non-partisan advocacy group The Senior Citizens League, which calculated the figure. It’s also a bump from last month’s estimate when the increase for next year was expected to be 5.3%.
The new estimate comes as the Consumer Price Index (CPI) in June increased 5.4% from a year earlier, the largest gain since August 2008. Higher food and energy prices were among the culprits that helped push the inflation measure higher.
Legislation enacted in 1973 allowed for cost-of-living adjustments to social security checks to keep pace with inflation. According to the Social Security Administration, the latest COLA is 1.3% for social security benefits and social security insurance payments. Social security increased by 1.3%, beginning with the December 2020 benefits payable in January 2021.
COLA is computed with a formula specified by the Social Security Act and is based on increases in the CPI for Urban Wage Workers and Clerical Workers. This is calculated monthly by the Bureau of Labor Statistics.
The Social Security Administration (SSA) adjusts its payments once a year, starting with December benefits paid in January. This means recipients would have to wait until December adjustments to see a new COLA percentage hike to be paid beginning January 2022.
The COLA could be subject to change, as there are still three more months of data to report before the SSA determines the official number for next year.
The Federal Reserve is unlikely to change its current inflation policy. Fed Chairman Jerome Powell said on Wednesday that the central bank is still “a ways off” from changing its policy.
Congress introduced a bill last week to change how the annual COLA is calculated to better reflect costs seniors pay.
The Fair COLA for Seniors Act of 2021, proposed by Rep. John Garamendi (D-CA), calls for changing the measure to the CPI for the Elderly, or the CPI-E, rather than the CPI for Urban Wage Earners and Clerical Workers, or the CPI-W, that is currently used.
The CPI-E may better reflect the expenses seniors face because it is based on items that people age 62 and older tend to use, including a higher weighting for health-care costs, according to Richard Johnson, director of the program on retirement policy at the Urban Institute.
The co-sponsors for Rep. Garamendi’s bill are mostly Democrats. In contrast, Republicans have proposed moving to the so-called Chained CPI, which measures how people adjust their spending when prices go up.
Johnson claimed that switching to the CPI-E would increase about 0.2 percentage points per year over the current index.
“Over time, that has a big impact,” he said.
Estimates indicate that COLA using the CPI-E would push benefits 5% higher over 25 years.
While altering the way the COLA is calculated is an “obvious kind of change that we should make,” according to Johnson, costs still stand in the way.
“It would worsen the trust funds’ financial position, which is already quite precarious,” Johnson said. “It seems like this type of change could become part of a larger Social Security reform effort.”