On October 13, 2021, the Social Security Administration (SSA) officially announced that Social Security recipients will receive a 5.9 percent cost-of-living adjustment (COLA) for 2022, the largest increase in four decades. This adjustment will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2022. Additionally, increased payments to more than 8 million Supplemental Security Income (SSI) beneficiaries will begin on December 31, 2021.
Biggest COLA Increase in Decades?
While many predicted a bump of as much as 6.1% given recent movement in the Consumer Price Index (CPI), the announced 5.9% increase is still substantial. Some fear that rising consumer prices may dilute the impact of the increase with inflation currently running at more than 5 percent. While this remains to be seen, Social Security beneficiaries will no doubt welcome the largest adjustment since 1982.
How You Will Be Notified.
According to the Social Security Administration, Social Security and SSI beneficiaries are usually notified about their new benefit amount by mail starting in early December. However, if you’ve set up your SSA online account, you will also be able to view your COLA notice online through your “My Social Security” account.
Is it Enough?
For years organizations like the AARP have pointed out that the index used to calculate inflation—the CPI-W, a consumer price index that reflects the increasing cost of goods for urban wage earners—does not reflect the inflation on goods and services needed by the elderly, such as health care. In July, a bill titled “Fair COLA for Seniors Act of 2021” was introduced which would require the Consumer Price Index for the Elderly (CPI-E) be used when Social Security calculates their annual COLA (Cost of Living Adjustment).
Is Social Security Going Broke?
Per the Washington Post, each year, the Social Security Board of Trustees releases a report that analyzes the current and projected financial health of Social Security and Medicare. This year, the trustees found that: “The finances of both programs have been significantly affected by the pandemic and the recession of 2020.”
The trustees now project the Old-Age and Survivors Insurance (OASI) Trust Fund will be insolvent in 2033. What this means there will be enough income to pay out only 76 percent of scheduled payments.
One solution often debated is getting rid of the income threshold for the Social Security payroll tax. In 2021, the maximum taxable earnings subject to the Social Security tax is $142,800. Earnings above the maximum are not subject to the tax, which is 6.2 percent for employees and a matching 6.2 percent for employers. (NOTE: Even though many do not pay in, very few high-earners decline to file for Social Security payments.)
There’s no income cap for the Medicare tax, which is 2.9 percent. (Employers pay 1.45 percent, and employees cover the other half.)
A Gallup poll this year found that 38 percent of U.S. adults not yet retired thought Social Security would be a major source of their income, but the reality is that 57 percent of retirees rely on Social Security as their main source of income.
Your Next Steps?
If this information about Social Security surprises or concerns you, it’s always a good idea to seek guidance from your financial professional about changes to any of your sources of retirement income. We welcome the chance to talk with you about this. You can reach John Sciancalepore here.