What You Need to Know
- How the Social Security Administration calculates COLAs has become a topic of debate.
- The Senior Citizens League is projecting a 5.3% COLA in 2022.
- Senior advocates say CPI-W isn't reflective of older adults' spending; others say the index COLAs are based on doesn't matter much.
Inflation is always a concern for retirees, which is why Social Security builds in cost of living adjustments each year. This past year, Social Security beneficiaries are facing an unusual situation: With COVID-19 lockdowns last spring and summer, economic activity in 2020 ground to a halt and as a result, COLAs were just 1.3%, which for the typical retiree equaled just $20 a month.
But in the early months of 2021, as the pandemic is abating and economic activity is revving up, inflation is running higher than it has in years, which the Bureau of Labor Statistics estimated to be about 5% in May, the highest rate since the 2008 to 2009 financial crisis.
The Senior Citizens League believes that the Social Security COLA will be 5.3% in 2022, given the recent price hikes.
It’s hard to know whether the current spate of inflation is just a blip due to comparisons with the COVID period with economic activity on hold.
How Social Security COLAs Work
The Social Security COLA increase is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as measured from the fourth quarter of 2019 to the third quarter of 2020, which showed muted inflation. The average recipient getting an additional $20 a month, rising from $1,523 to $1,543.
Since 2012, Social Security COLAs have ranged between 0% and 2.8%, keeping in line with a tame inflation rate over the last decade.
This year, seniors are experiencing double-digit price hikes in spending categories such as car and truck rentals, gasoline, heating oil and beef and pork roasts, according to data compiled by the League.
What’s more, increases in Medicare Part B, the portion of the health insurance plan for retirees that covers outpatient care, medical equipment and other medical services, rose by 6%, from $144.60 to $153.30, eating up most of the increase.
The League estimates that since 2000, Social Security has lost 30% of its purchasing power.
The Great Inflation Debate
How the Social Security Administration calculates COLAs has been a topic of some debate for a while. Organizations such as the Senior Citizens League advocate for the use of a different metric, the Consumer Price Index for Americans 62 years of age and older or R-CPI-E, which tracks a basket of goods typically used by seniors.