Inflation could prompt largest Social Security cost-of-living adjustment in decades.

[Graybeard]

I saw this reported on CNBC today. I was shocked at the percentage but I guess this is just a guess right now. They discussed changing the way SS COLA is determined because the inflation factors they use are not the things that seniors buy the most. For example, healthcare is excluded but energy is included.

"The Social Security cost-of-living adjustment for 2022 could be 6.1% due to inflation, according to a new estimate.

That would be the biggest increase since 1983, according to non-partisan advocacy group The Senior Citizens League, which calculated the figure. It’s also a bump up from last month’s estimate, when the increase for next year was expected to be 5.3%."

https://www.cnbc.com/2021/07/14/social-security-cost-of-living-increase-for-2022-may-be-largest-in-decades.html

 

[W2R]

I saw this reported on CNBC today. I was shocked at the percentage but I guess this is just a guess right now. They discussed changing the way SS COLA is determined because the inflation factors they use are not the things that seniors buy the most. For example, healthcare is excluded but energy is included.

"The Social Security cost-of-living adjustment for 2022 could be 6.1% due to inflation, according to a new estimate.

That would be the biggest increase since 1983, according to non-partisan advocacy group The Senior Citizens League, which calculated the figure. It’s also a bump up from last month’s estimate, when the increase for next year was expected to be 5.3%."

https://www.cnbc.com/2021/07/14/social-security-cost-of-living-increase-for-2022-may-be-largest-in-decades.html

I am forever the skeptic; I'll believe it when I see it. That said, I have to admit I have had some fun calculating what increases I might get.

 

[TheWizard]

A major increase in inflation is not a good thing...

 

[Car-Guy]

"The Social Security cost-of-living adjustment for 2022 could be 6.1% due to inflation, according to a new estimate.

That would probably get me an extra fill-up each month for my truck, if gas prices stay the same as they are today, which I doubt.

 

[Ready]

Inflation impacts everyone differently. If you own your home you are protected against rent increases. And rising inflation generally results in the Fed raising interest rates, which is a big benefit for retired folks who are relying on some return on their fixed income investments to live on. So rising inflation is not all bad.

 

[Dtail]

Inflation impacts everyone differently. If you own your home you are protected against rent increases. And rising inflation generally results in the Fed raising interest rates, which is a big benefit for retired folks who are relying on some return on their fixed income investments to live on. So rising inflation is not all bad.

True although it is clear that the Fed is very reluctant to raise interest rates unless they feel they truly have to.

 

[DektolMan]

I'll start collecting my 1st SS check in August so if I get a 6.1% increase in January I'll take it! I'm also skeptical, we see how this plays out.

 

[donheff]

I'll start collecting my 1st SS check in August so if I get a 6.1% increase in January I'll take it! I'm also skeptical, we see how this plays out.

Federal annuity COLAs (which are based on SSA COLAs) are prorated if the person retired in the year on which the COLA was based. In your situation a Fed would only get about 40% of the increase. Does this apply to Social Security COLAs?

 

[Golden sunsets]

I am not skeptical. The increase will be the increase reported by the Bureau of labor statistics. The contributions to the new rate thus far are 5.1%, for the first 9 months of the 12 month period that determines the rate (10/1/20 through 9/30/21). We have 3 more months of numbers to be reported. It is possible that prices increase further over those 3 months, or prices could moderate, or even decrease. We will know on 10/12/21 (approximately), what the new rate will be for 2022.

This link https://www.myfederalretirement.com/fers-csrs-cola-watch/ explains it well.

I believe a bill has been proposed in Congress to change the CPI factor for cola calculations from CPI-W, inflation for Urban Wage Earners to CPI-E, inflation for the Elderly, which is higher than W, by a couple of hundredths of a percent. I'm not sure if that proposal has any chance of success this year. Methinks not.

 

[braumeister]

The next three months will determine it, but so far it seems likely that there will be a substantial COLA.

COLA Watch

 

[Dtail]

On a semi related matter, has there been any updates on the potential decreases for folks born in 1960?

 

[foxcreek9]

On a semi related matter, has there been any updates on the potential decreases for folks born in 1960?

"I think it would be hard to for Congress to finalize any legislation intended to address this issue at the present time. Retirement benefit rates for people born in 1960 can't be precisely calculated until the 2020 AWI is determined, and that amount won't be known until later this year. In other words, it's difficult to fix a problem until you find out how much of a problem there actually is.


I strongly believe that congress will take action to address the benefit calculation problems caused by the pandemic. In fact, there are already congressional bills in the works to address this situation. Whether or not your benefit estimate shown on Social Security's website turns out to be accurate depends on the eventual amount of the 2020 AWI, and what action is taken by congress to address the issue."

https://www.forbes.com/sites/kotlik...lems-for-people-born-in-1960/?sh=7165bc052965

 

[Sue J]

I am forever the skeptic; I'll believe it when I see it. That said, I have to admit I have had some fun calculating what increases I might get.

Ha ha, me too! But then I hold back on too much optimism because I know they will also increase Medicare Part B at the same time. My SS benefit is small so any increase in the Medicare deduction takes a fair chunk of it, but I should still see an increase of the current benefit. Ka-ching!

 

[braumeister]

the inflation factors they use are not the things that seniors buy the most.

Even more so for the early retired, but it still seems like a reasonable methodology to me.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is based on the expenditures of households included in the CPI-U definition that also meet two additional requirements: more than one-half of the household's income must come from clerical or wage occupations, and at least one of the household's earners must have been employed for at least 37 weeks during the previous 12 months. The CPI-W population represents about 29 percent of the total U.S. population and is a subset of the CPI-U population.

 

[Chuckanut]

FWIW, the price of lumber futures have fallen by nearly 2/3 according to an article in the WSJ. Since I have not purchased any wood lately I don't know what the local lumber yard is charging this week.

I do know that I am glad I didn't have to replace any planks in my deck this last Spring.

 

[qwerty3656]

I think I saw a comment on another thread saying if you haven't started taking SS, these increases don't apply (i.e. I shouldn't assume my SS FRA is going up by 6%). Is that right?

 

[USGrant1962]

Even more so for the early retired, but it still seems like a reasonable methodology to me.

And the problem with using a higher inflation factor for benefits (CPI-E) than for the payers (wages go up by approximately CPI-W) is that the system goes insolvent even sooner.

Indexing benefits to the inflation rate of OASDI income (a percent of wages) is the only sustainable approach for a self-contained system. That doesn't mean Congress won't disconnect them, but there are consequences to the balance sheet.

 

[Dtail]

I think I saw a comment on another thread saying if you haven't started taking SS, these increases don't apply (i.e. I shouldn't assume my SS FRA is going up by 6%). Is that right?

If one is under 60 y.o., then the yearly estimated increases is based off the Average Wage Increase (AWI) vs. the CPI increase %.
If one is 63 for example but hasn't taken SS yet, then the CPI % would apply for future estimated amounts. No different then if one already is taking SS.

 

[Dtail]

Ha ha, me too! But then I hold back on too much optimism because I know they will also increase Medicare Part B at the same time. My SS benefit is small so any increase in the Medicare deduction takes a fair chunk of it, but I should still see an increase of the current benefit. Ka-ching!

Yes logically the Medicare Part B will also go up, but I don't believe that the medical inflation rate currently is any higher than the CPI overall rate.
Thus unless your SS monthly is near the 148.50 Part B rate, one should still have a decent increase.
Yes in the end, might still only be talking around 1-3k increase next year.

 

[ivinsfan]

Don't forget if you have a small benefit a big increase could mean you will pay any past Part B increases that may have been deferred.

 

[finnski1]

If one is under 60 y.o., then the yearly estimated increases is based off the Average Wage Increase (AWI) vs. the CPI increase %.
If one is 63 for example but hasn't taken SS yet, then the CPI % would apply for future estimated amounts. No different then if one already is taking SS.

I just found this on the SS website as well.

https://www.ssa.gov/pubs/EN-05-10070.pdf


"You’re eligible for cost-of-living benefit
increases starting with the year you
become age 62. This is true even if you
don’t get benefits until your full retirement
age or even age 70. We add cost-of-living
increases to your benefit beginning with the
year you reach 62. Benefits are adjusted
yearly to reflect the increase, if any, in the
cost-of-living as measured by the Consumer
Price Index."

 

[Dtail]

I just found this on the SS website as well.

https://www.ssa.gov/pubs/EN-05-10070.pdf


"You’re eligible for cost-of-living benefit
increases starting with the year you
become age 62. This is true even if you
don’t get benefits until your full retirement
age or even age 70. We add cost-of-living
increases to your benefit beginning with the
year you reach 62. Benefits are adjusted
yearly to reflect the increase, if any, in the
cost-of-living as measured by the Consumer
Price Index."

Interesting as I thought the AWI increase does not apply to age 61.

 

[Teacher Terry]

My SS is 377 before Part B is subtracted. I get 227 after and all of last year’s raise was taken by part B increase so nothing changed for me. So personally it doesn’t matter.

 

[CRLLS]

Don't forget if you have a small benefit a big increase could mean you will pay any past Part B increases that may have been deferred.

I too believe that is true. Some people may be very disappointed.

 

[jazz4cash]

If one is under 60 y.o., then the yearly estimated increases is based off the Average Wage Increase (AWI) vs. the CPI increase %.

If one is 63 for example but hasn't taken SS yet, then the CPI % would apply for future estimated amounts. No different then if one already is taking SS.

Whew! That’s good to hear. I don’t see how it could be otherwise. I am holding out for FRA but I’m actually targeting a specific dollar amount which I may hit a few months after FRA or maybe a few months before if these increases factor into the benefit calculation.