With inflation as high as it’s been this year, Social Security recipients may be on tenterhooks to find out how much bigger their next cost-of-living increase will be. Some estimate they could be seeing the biggest hike since the 1980s after just a 1.3% increase this year.
The Senior Citizens League, a nonpartisan senior citizens advocacy group, said this week it estimates the Social Security Administration’s cost-of-living adjustment, sometimes referred to as COLA, could be 6.2% for next year, up from the 1.3% for 2021 and the highest since the 7.4% increase for 1983. For someone with the average monthly benefit of $1,433.23 (as of June), that’s the equivalent of almost $89 more a month.
Rapidly accelerating inflation, like we’ve had this year, can wreak havoc on retirees in part because there is a lag time in the cost-of-living adjustments made to Social Security benefits each year. Thirty-four percent of retirees the Senior Citizens League surveyed said they have had to dip into emergency savings since March 2020 because of the pandemic. Shutdowns triggered supply issues as demand increased, causing prices to spike and eroding their buying power. The average monthly benefit this year increased by about $20, but about 86% of recipients said their expenses increased by much more than that, the League said.
Enacted through legislation in 1973, COLA is calculated in the third quarter of each year for the following year using the change in one of the Consumer Price Indexes (CPIs), called the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. It compares the third-quarter average of that index with the previous third-quarter average. That sub-index rose 6% over the 12 months through July—the first month of the third quarter—while overall CPI was up 5.4%, matching June’s pace for the highest since 2008.
With one-third of the data needed to calculate the COLA already established, Mary Johnson, a Social Security policy analyst for The Senior Citizens League, said she estimated August and September figures using the average monthly rate of increase over the past year. The actual COLA increase is expected to be announced in October.
In 2021, an average of 65 million Americans per month were expected to receive a Social Security benefit. Nearly 90% of people aged 65 or older collect Social Security, and among elderly recipients, 50% of married couples and 70% of unmarried people receive at least half of their income from those benefits.