By Mark Miller

CHICAGO (Reuters). – The author of this article is a columnist from Reuters.

While a 6-percent increase in the average salary is rare, it’s possible to get a boost of this magnitude in Social Security benefits. 

Social Security beneficiaries will receive a 5.9% cost of living adjustment (COLA) in the next year due to unusually high inflation driven by pandemics. This is the highest COLA since 1982. Social Security Administration has announced that the Annual COLA for next year will reach more than 64 millions of Social Security beneficiaries and 8,000,000 who are eligible for Supplemental Security Income.

People who have yet to file for Social Security benefits but are still eligible for it, as well as those with disabilities, will also be affected by COLAs. If you wait until you turn 62 to apply for benefits, then your benefit will adjust to reflect the 5.9% COLA in 2022 and subsequent COLAs.

COLA, which holds Social Security benefits in check against rising inflation over time is one of the most important features of Social Security. Experts debate the accuracy of the COLA’s measurement of inflation in seniors. However, the COLA is inflation-adjusted and Social Security would not be able to compete on the annuity markets.

Surveys consistently show inflation as a top concern for retirees. Because seniors are generally on fixed incomes, this is why inflation often comes up in surveys. The average COLA has been a paltry 1.4% over the past twelve years. However, overall inflation was generally stable during those 12 years. 

According to The Senior Citizens League which monitors inflation impacting seniors, Social Security benefits has lost 32% of its purchasing power since 2000. The large COLA will be welcome news, but rising food, rental housing, home ownership, home and and prescription drug prices are areas of worry, says Mary Johnson, the League’s Social Security and Medicare policy analyst. 

“We’re hearing from a lot of seniors worried that they can’t afford to buy groceries because they’re running out of money at the end of the month, or that they can’t afford their prescription drugs – maybe they’re taking them every other day or cutting their pills in half.” 

If inflation slows, the COLA could drop to a smaller level in years future.

Stephen Goss (chief actuary for the Social Security Administration), stated that the COLA was nearly twice the 3.1% rise the Social Security trustees were anticipating during Wednesday’s webinar about the COLA hosted by the Bipartisan Strategy Center.

“We do think that this additional increase over the 3.1% forecast will be at least partially offset in the coming years by COLAs that will be somewhat smaller than we otherwise would have expected,” Goss added.

The FINAL NUMBERS COMING SOON

Social Security COLA is calculated by an automated formula. It averages the 3Q figures for the urban consumer price index (CPI-W) and adds them together. This headline number for 2022, released Wednesday, isn’t the last word about the senior increase next year.

Social Security benefits often deduct Part B Medicare benefits from Social Security benefits. The figure usually is not released until the fall. But, the Medicare trustee’s report in August projected a Part B standard premium of $158.50 per monthly in 2022. This represents a $10 increase, or 6.3%, over this year.

This would leave retirees with an adequate COLA. If your monthly benefit was $1,500 it would result in a gross COLA totaling $88.50. This would decrease to $78.50 if Part B premiums rise by $10. 

High-income senior citizens could lose their COLA due to higher taxation on their benefits. Taxes are owed on “combined income,” which includes your adjusted gross income plus nontaxable interest plus 50 percent of your Social Security. The beneficiaries who have combined income greater than $25,000 or higher for single filers, and more than $32,000 for married filers are affected. But the ceilings do not adjust for inflation.

High COLA could also lead to more seniors enrolling in Income-Related monthly Adjustment Amounts. This surcharge is added on to standard Medicare Part B premiums and applies only for those with modified adjusted gross incomes over certain levels.

Johnson advises senior citizens to be aware of any possible changes. “You may want to set aside more to pay those bills,” she says.