The annual cost-of-living adjustment (COLA) for Social Security benefits — and affecting other federal retirement programs — could be 6.2% according to Social Security and Medicare policy analyst Mary Johnson of the Senior Citizens League (TSCL).
“The estimate is significant because the COLA is based on the average of the July, August and September CPI data,” said Mary Johnson, a Social Security policy analyst for TSCL. “With one third of the data needed to calculate the COLA already in, it increasingly appears that the COLA for 2022 will be the highest paid since 1983 when it was 7.4%,” Johnson said.
The Social Security Act ties the annual COLA to the increase in the Consumer Price Index (CPI-W) as determined by the Department of Labor’s Bureau of Labor Statistics (BLS).
- SEE ALSO: 2022 COLA Watch
In 2021 the COLA increased by 1.3 percent raising the average benefit by about $20. According to recent survey by TSCL, about 86 percent of Social Security recipients. The survey asked: “Which of the following financial actions have you taken during the COVID-19 pandemic? (March 2020 to present.)”
Here’s how survey participants responded:
“Under current law, Social Security benefits are adjusted using an index that measures inflation experienced by younger working adults, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) but does not include the spending patterns of households with retirees age 62 and older,” TSCL said. “Because this index surveys the spending patterns of younger working adults, it is weighted more heavily for gasoline, which is up 41.8 percent over the past 12 months and driving the steep rise in the COLA. But in 2020 and most of the past 12 years, gasoline prices have been in steep decline. COLAs have averaged just 1.4%.”
The higher 2022 COLA would be welcome news to retirees. Based on inflation through March, research by Johnson indicates that Social Security benefits have lost 30 percent of buying power since 2000.
“Retired and disabled Social Security beneficiaries spend their money differently than younger workers, spending more on healthcare and housing,” TSCL said. “In recent years those categories have increased more rapidly than gasoline but haven’t shown up as higher COLAs because the CPI-W is weighted less heavily for those categories. When retirees don’t receive a COLA that keeps up with their actual costs, their Social Security benefits lose buying power during the course of a retirement.”
Groups Urge Use of CPI-E to Calculate COLA
Groups such as the National Active and Retired Federal Employees Association (NARFE) and TSCL have been advocating for legislation that would tie COLAs to an index that measures inflation experienced by older households, the Consumer Price Index for the Elderly (CPI-E).
“NARFE continues to support strong COLAs based on fair assessments of increases in consumer prices to protect the value of federal annuities from inflation,” NARFE writes on their website.
“NARFE specifically supports the Fair COLA for Seniors Act, H.R. 1553, which would switch to the Consumer Price Index for the Elderly (CPI-E) and result in higher COLAs. NARFE also opposes a switch to the Chained CPI, which would result in lower COLAs. Finally, NARFE supports the Equal COLA Act, H.R. 1254, which would provide FERS annuitants with a full COLA, equal to the change in consumer prices, regardless of the percentage, as is provided to CSRS annuitants and Social Security beneficiaries.”
The Consumer Price Index for August 2021 is scheduled to be released on Sept. 14, 2021. The final amount of the 2022 COLA will not be determined until living costs for July, August and September this year are tallied. That final figure will be announced in mid-October.
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