WHY ARE SOCIAL SECURITY BENEFITS ADJUSTED?
Rising inflation is relied upon to prompt a sizeable expansion in Social Security’s yearly average cost for basic items change, or COLA, for 2022. Precisely how much will be uncovered Wednesday morning after a Labor Department report on inflation during September, an information point utilized in the last computation. Throughout the most recent 10 years, the Social Security COLA has averaged about 1.7% every year as inflation stayed low. However, the financial recuperation from the Covid pandemic has set off rising costs for a wide scope of goods and services, and that is relied upon to mean greater checks for retirees.
Policymakers say the COLA works to preserve the purchasing power of Social Security benefits, and shouldn’t be seen as a pay hike for retirees.
At one time Congress had to approve inflation increases, but starting in the mid-1970s lawmakers turned that function over to nonpartisan experts within the government bureaucracy. The annual review is now tied to changes in an official measure of inflation and proceeds automatically and with no political brinksmanship.
The Great Recession saw a COLA increase of 5.8% for 2009, and the number for next year may rival that.
This summer, government economic experts predicted a COLA in the range of 6%. If that’s the case, it would be the biggest Social Security hike the vast majority of baby boomer retirees have seen. Up to now, they’ve collected meager to modest annual adjustments, not counting three years for which there was no COLA because inflation barely showed a pulse.
A 6% COLA would increase the average Social Security payment for a retired worker by close to $93 a month, to $1,636 next year. Compare that to this year’s COLA, worth only about $20 a month.
WHAT’S CHANGED OVER THE PAST YEAR?
As the economy recovers from the shock of coronavirus shutdowns, prices are rising at a pretty good clip. Gas serves as an ever-present reminder, above $3 a gallon in most states, $4 a gallon in California and Hawaii. But food had already been going up and so are labor costs as employers compete to hire choosy workers seeking higher pay and better benefits. Add to the mix supply chain problems that have slowed deliveries of everything from refrigerators to running shoes.
All that gets sifted into the prices that consumers pay for their everyday needs. WHO’S AFFECTED?
The COLA is big enough to have an impact on the overall economy. It affects the household budgets of about 1 in 5 Americans, including Social Security recipients, disabled veterans and federal retirees, about 70 million people.
About half of seniors live in households where Social Security benefits account for at least 50% of their income, and one-quarter rely on their monthly payment for all or nearly all their earnings. For this latter group, the COLA can literally make a difference in what they’re able to put on the table. DO PRIVATE PENSIONS ALSO PROVIDE A COLA?
Inflation protection is central to Social Security’s benefit design, but it’s not so common among traditional private pensions. Benefits paid by most employer plans gradually lose some of their purchasing power over the years. Social Security not only increases retiree checks to compensate for inflation, but it then adds that amount to a person’s underlying benefit so it grows with compounding as future COLAs are factored in.
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