The Good News and the Bad News of Huge Social Security Payment Increase
Social Security recipients are about to receive the largest cost of living adjustment (COLA) increase in the monthly checks in decades. But, that is not all good news.
SSI recipients in 2022 are in line to receive the big payment increase reflecting a pandemic-driven inflation surge – but the boost could ultimately deplete the fund a year earlier than expected. The Social Security Administration recently announced that the COLA will be 5.9%. That amounts to a monthly increase of $92 for the average retired person, bringing the average amount to $1,657. A typical couple’s benefits would climb by $154 to $2,754 per month.
But the increase – the steepest annual adjustment since 1982, when recipients saw a 7.4% bump – could push Social Security closer toward insolvency.
The government has projected that Social Security, one of the biggest federal benefit programs, will be unable to pay full benefits starting in 2033. At that point, only 76% of benefits could be paid out.
But factoring in the nearly 6% increase in benefits, the program could be dealt a financial blow. The Committee for a Responsible Federal Budget estimated the fund could be depleted by 2032 with the latest COLA increase.
“Social Security is already on a path to insolvency, and we estimate the higher cost-of-living payments could deplete the program’s trust fund a year earlier than projected,” the group said in a statement.
The increase marks an abrupt end to low inflation that saw years of meager COLA increases. Over the past 12 years, the average adjustment has been just 1.4%. In 2021, recipients received an increase of just 1.3% or about an extra $20 a month for retirees.
The adjustment will affect about 70 million people, including Social Security recipients, disabled veterans, and federal retirees. About half of seniors live in households where Social Security benefits provide at least half of their income, while roughly 25% rely on the monthly payment for nearly all of their earnings.
The annual Social Security change, which is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W, comes as the nation grapples with unusually high inflation.
For almost everybody who is retired and still alive today and receiving Social Security, this will probably be the highest COLA they have ever received,” said Mary Johnson, a Social Security policy analyst for the Senior Citizens League.
“We are talking about an inflation rate that almost all Social Security recipients have never experienced,” she said.
Besides the potential for draining the coffers sooner than expected, there are some potential downsides to the huge COLA increase. The more generous payment will subject some recipients to new taxes or bump them into a higher tax bracket, offsetting some or all of the increase.
Also, many economists are forecasting high inflation again next year as supply chain bottlenecks continue to drive up product costs while labor shortages push employee wages and related prices higher.
“The COLA is paying for inflation from last year,” says Johnson. “Not,” she adds, “for future years.”