Social Security checks could see a huge increase next year. Will this be enough?

The continued rise in inflation that forces Americans to pay more for gas, food, cars and more could lead to the biggest increase in Social Security in nearly 40 years when authorities announce the cost of living adjustment, or COLA, for 2022.

Additionally, members of Congress have proposed changes to the way COLA is calculated, which could result in even larger Social Security checks for 55 million retirees, their dependents and survivors.

But inflation has already led to a dramatic increase in the cost of living for older Americans, who have had to scramble to find ways to save money, according to advocacy group The Senior Citizens League. So even a large increase may not be enough.

COLA 2022 could be the biggest since 1983

Social Security’s 2021 cost-of-living adjustment, which began to affect payments in January, was 1.3%. Inflation this year has already devoured the rise.

The Consumer Price Index, America’s leading indicator of inflation, shows it hit an annual rate of 5.4% in June, a 13-year high. A New York Federal Reserve survey found consumers expect average inflation to be 4.8% for the remainder of 2021.

Based on this year’s price increases, the Senior Citizens League predicts that Social Security benefits could be increased by 6.1% for 2022. If that happens, it would be the biggest increase since 1983. Social Security Administration will announce next year’s COLA over the grave.

A generous increase might be bittersweet for some recipients. Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League, says some Social Security recipients may see cuts in other benefits because of their larger checks.

“Higher incomes could mean reductions in food stamps, rental assistance, or additional assistance from Medicare, which covers most prescription drug costs,” Johnson told MoneyWise.

Rethinking the way COLA is calculated

Advocates have argued for years that Social Security COLAs neglect older people because they don’t accurately reflect the prices older Americans pay. A bill that would change the way increases are calculated has been reintroduced in the House of Representatives.

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If passed, the Fair COLA for Seniors Act of 2021 would base the annual adjustment on a “consumer price index for the elderly”.

This would reflect the costs of items typically purchased by people aged 62 and over, and it could result in higher Social Security payments.

Research from the Senior Citizens League shows that focusing on the prices paid by the elderly would have led to a larger COLA every year since 2016. But the differences may not have been significant.

Between 2016 and 2021, overall consumer price increases averaged 1.3%. The theoretical price index calculated by The Senior Citizens League would have seen an average growth of 1.71% over the same period.

Defenders want sweeter COLA

Johnson says something needs to be done because Social Security has not kept pace with retiree costs, especially medical and housing expenses, which have tended to rise faster than headline inflation.

Retirees have also hit their savings due to the economic turmoil caused by COVID-19. Despite the stock market’s furious comeback after the initial shock of the pandemic, 50% of retirees polled by the Senior Citizens League said their retirement accounts remained in default at the end of last year.

“So a significant number of retired households have been hit by skyrocketing costs this year as their retirement savings have not recovered from the blow of 2020,” she said.

The League of Seniors calls on the Social Security Administration to take three main measures to better respond to the growing financial challenges facing the elderly:

1. Provide a one-time modest boost to all retirees to help improve the purchasing power of their social security benefits.

2. Link the annual inflation adjustment to a consumer price index that more accurately reflects the purchasing habits of retired and disabled households, who spend more of their income on housing and medical expenses. (The Fair COLA For Seniors Act seems to do this.)

3. Provide a guaranteed minimum COLA of at least 3%. “This would be especially important in years when there is deflation and the COLA falls below zero, as it has done three times in the past,” Johnson said.

How to fight inflation

The Fed believes rising inflation could be a problem for another “six to nine months,” according to Atlanta Fed Chairman Raphael Bostic to NPR in June.

It could mean an extended period of reduced savings and purchasing power, but there are several things all Americans – including seniors – can do to lessen the effects of inflation on the budget.

If you’re still making payments on your mortgage, now is a good time to refinance and lower your monthly payment. Mortgage rates are once again approaching historic lows and the end of pesky refinancing fees has made refi lending an even better deal.

To protect yourself against soaring health care costs, look for a better health insurance deal. Use a website that lets you compare plans from hundreds of insurers, to see if there’s an option that offers the coverage you need, but with lower premiums and out-of-pocket costs.

When shopping online, be sure to take advantage of all the great deals available so you don’t overpay. Download a handy browser extension that searches for lower prices and instantly provides promotional codes that websites request during checkout.

A few wise investments can also help stave off the effects of rising costs.

Investing in farmland can be a good hedge against inflation, and a new platform is helping investors tap into this long-neglected asset class.

And if you’re cautious about the stock market, you can try a low-stakes way to stick your toe in. A popular app allows you to invest in a diversified portfolio using little more than the “spare currency” you have left over from your daily purchases. .