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When Social Security announces its cost of living adjustment for 2022 later this year, beneficiaries are expected to get the biggest percentage increase in 40 years thanks to inflation that has jumped amid the pandemic recovery.
With inflation contained in 2020, Social Security beneficiaries received a 1.3% increase in January, resulting in an estimated average benefit increase of around $ 20 per month, according to the Senior Citizens League, a group for the rights of the elderly.
But the government measure of inflation used to determine the cost of living adjustment, or COLA, has increased over the past year and the Senior Citizens League is now forecasting a COLA of 6.2% for 2022 payments. This would translate to an increase of $ 96.40 per month for those receiving the average monthly payment of about $ 1,555.
“With one-third of the data needed to calculate COLA already in place, it increasingly appears that COLA will be the most paid since 1982, when it was 7.4%,” says Mary Johnson, policy analyst social security and health insurance for the elderly. League.
For its part, Moody’s Analytics estimates that the COLA 2022 will be 4.6% and even lower next year as inflation moderates. The surge in inflation in recent months is a reflection of the mitigation of the pandemic, says Mark Zandi, chief economist at Moody’s Analytics. “By the same time next year, these supply problems will certainly be resolved, supply will increase and demand will moderate,” he said. “My feeling is that the COLA adjustment for 2023 will probably be 2.5%.”
Since 1975, COLAs have been automatic; the increases were fixed by law before that. The adjustment is now determined by applying the percentage increase, if any, in the Department of Labor Consumer Price Index for Urban and Office Workers, or CPI-W, for the third quarter of the previous year to the third quarter of the current year. The index is a measure of the monthly change in prices in a basket of goods and services, including food, energy and health care. Any adjustment is usually announced in October and begins to be paid in January.
Since 2000, social security benefits have lost 30% of their purchasing power, based on inflation until March, according to a study by the Senior Citizens League.
For many Social Security recipients, much of the increase in benefits over the past decade has been absorbed by the increase in their Medicare Part B premiums, says David Certner, legislative counsel and director of legislative policy for government affairs at AARP. Most people enrolled in Medicare have their premiums for Medicare Part B, which covers doctor visits and other types of outpatient care, deducted from their Social Security payments.
Last year, the Medicare Part B premium increase was limited by a federal spending bill to 25% of what it otherwise would have been. The standard Part B premium, which is what most people pay, for 2021 is $ 148.50 per month, up by less than $ 4 from $ 144.60 per month in 2020. It doesn’t There is no estimate yet for a change in this year’s premium.
“The idea is that we could see a bigger increase in Part B bounties in 2022 than in the past,” Johnson said.
Some are calling for a change in the way COLA is calculated, which they say would increase Social Security benefits. The Fair COLA for Seniors Act of 2021, a bill introduced to Congress in July, calls for calculating the adjustment for changes in the Consumer Price Index for Seniors, or CPI-E, rather than of the IPC-W. The CPI-E better reflects the actual increase in costs for older people, as it weighs more heavily on items older people typically spend, such as health care, advocates say.
In most years, a COLA calculated using changes in the CPI-E would be moderately higher than a COLA reflecting changes in the CPI-W, Johnson says. However, with the data currently available, using the CPI-E to project the COLA payable in 2022 would result in an increase of 5%, lower than the projection reflecting the CPI-W, she said. That’s because the CPI-W is more heavily weighted for gasoline prices, which are high this year, she says. The 2017 COLA of 0.3% would have been 1.5% if the CPI-E had been used, Johnson says.
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