Big hike in social security to come, but will it still matter?

Social Security recipients will see their biggest increase in the cost of living in years in 2022, but much of the extra money is likely to be absorbed by higher costs.

Recipients could see their payments increase from 6% to 6.1% in January, according to a recent estimate from the Senior Citizens League, an advocacy group for the elderly. It would be the biggest increase in the cost of living since 1983, when a 7.4% increase took effect.

Much of the extra money will likely be consumed by rising prices and rising health insurance premiums, according to The Motley Fool, a financial website.

For example, monthly Medicare Part B premiums will increase by 6.2% next year, The Fool said. This is higher than the increase in the cost of living predicted by the Senior Citizens League.

Rising prices throughout the economy will also consume part of the increase that beneficiaries get. In July alone, consumer prices rose 5.4% year-on-year, according to Yahoo Finance.

In August, food inflation rose 3.7% and electricity rose 5.2%, according to The Motley Fool. Housing inflation rose 2.8%.

The numbers suggest that many Social Security recipients will simply see their cost-of-living increases disappear thanks to higher prices, The Fool said.

The sharp rise in the cost of living in 2022 comes after years of much smaller increases. The 2021 increase was only 1.3%, which translated to an average of about $ 20 per month for individuals.

A 5% increase for 2022 would increase the average monthly benefit by about $ 77 and a 6.2% increase would mean $ 96 more per month.

The Social Security Administration typically announces its annual cost of living increase in October and takes effect in January. The increase is based on the average inflation rate over the previous three months.

The biggest increase in 2022 is due to higher inflation. All kinds of prices have gone up in recent months, but if inflation falls, the rise could be smaller.