We’ve reached the halfway point of 2021, and if you’re anything like me, you’re already looking ahead and starting to plan for next year.
One big aspect of Social Security that is expected to change substantially in 2022 is the cost of living adjustment (COLA).
Each year, the monthly benefit amount is adjusted to account for inflation, and for the last 20 years, the typical COLA for Social Security ranged from 0.0% to 5.8% (in 2008).
Since 2000, the average annual COLA has been about 2.2%. This makes sense as consumer price inflation has been low for a long time.
But now, on the back end of the economic recovery following the COVID-19 pandemic, we are seeing consumer prices skyrocket. The cost of many things – from housing to gasoline to lumber to chicken wings – has increased significantly (by far more than 2.2%).
Although it mostly falls short, the Social Security Administration must try to keep up with the inflation rate so that some 8 million recipients can afford to live. Recently, a non-partisan group called the Senior Citizens League projected that the COLA for Social Security will rise by 5.3% for 2022. This estimate was based on the May 2021 Consumer Price Index (CPI) for urban wage earners and clerical workers. However, there are still several months’ worth of 2021 CPI data to collect before anyone can definitively say what the COLA will be next year.
U.S. interest rates will be another wildcard in determining what happens to the Social Security COLA in 2022. At its most recent meeting, the Federal Reserve indicated that rates could increase sometime in 2023 – perhaps twice that year, and much sooner than the 2024 rate hikes that the central bank had initially announced during the height of the pandemic.
In any event, the Social Security Administration announces the annual COLA every October and we will know more at that time.
Since we are at the halfway point of 2021, this is a great time to take stock of your retirement plan to make sure you’re on course to meet your goals.
Maximizing your Social Security Benefits, or at least, understanding what options you have, is important to improve your overall financial plan’s income.
If you’d like to review your plan with a financial advisor, click here to make a free, no-obligation appointment.