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The Social Security cost of living adjustment for 2022 could be 6.1% due to inflation, according to a new estimate.
It would be the biggest increase since 1983, according to non-partisan advocacy group The Senior Citizens League, which calculated the figure. This is also an increase from last month’s estimate, when the increase for next year was expected to be 5.3%.
The new estimate comes as the consumer price index in June rose 5.4% from the previous year, the largest gain since August 2008. Higher prices for food and energy were among the culprits that helped drive up the measure of inflation.
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This has helped to increase the estimate of the Social Security COLA for 2022. This annual change is calculated based on the Consumer Price Index for urban and office workers, or CPI-W.
Gasoline is particularly heavily weighted in the CPI-W, which has helped to increase the estimate of COLA. Many seniors are also noticing higher prices in their grocery stores, according to Mary Johnson, Social Security and Medicare policy analyst with the Senior Citizens League.
The COLA could be subject to change, as there are still three months of data to report before the Social Security Administration determines the official number for next year.
One thing unlikely during this time is Federal Reserve action. Central Bank Chairman Jerome Powell said on Wednesday that the Fed was still “a long way” from changing its policy.
The Social Security COLA for 2021 was 1.3%. For many retirees, that meant just $ 20 more per month. Over the years, the increases have resulted in a loss of purchasing power for the elderly, according to a study by the Senior Citizens League.
A bill was reintroduced in Congress last week to change the way annual COLA is calculated to better reflect the costs that seniors pay.
The Fair COLA for Seniors Act of 2021, proposed by Representative John Garamendi, D-Calif., Calls for changing the measure to the Consumer Price Index for Seniors, or CPI-E, rather than the CPI- W which is currently in use.
The CPI-E may better reflect the expenses that older people face, as it is based on items that people 62 and over tend to use, including a higher weighting for health care costs , according to Richard Johnson, director of the retirement policy program. at the Urban Institute.
Annual cost-of-living adjustments increased by an average of 2.9% under current methods from 1982 to 2011. The CPI-E, in contrast, increased by an average of 3.1% during this period, according to the bill.
The co-sponsors of Bill Garamendi are mostly Democrats. In contrast, in the past Republicans have proposed moving to the chained CPI, which measures how people adjust their spending when prices rise.
Switching to the CPI-E would result in an additional increase of about 0.2 percentage point per year over the current index, according to Johnson of the Urban Institute. “Over time it has a big impact,” he said.
Estimates indicate that after 25 years, cost-of-living adjustments using the CPI-E would increase benefits by 5%.
However, today’s retirees might not see much of a difference as it takes years to build up, Johnson said. But making the change always makes sense, he said.
“The purpose of these cost-of-living adjustments is that Social Security’s purchasing power does not erode over time,” Johnson said. “If we don’t use the right inflation adjuster, the benefits can erode.”
While changing the way COLA is calculated is an “obvious type of change we should be making,” Johnson says, there’s one thing standing in the way: costs.
“This would worsen the financial situation of the trust funds, which is already quite precarious,” Johnson said. “It looks like this type of change could be part of a larger social security reform effort.”
President Joe Biden’s Social Security campaign plans included a move to the CPI-E. A bill previously proposed to Congress, the Social Security 2100 Act, also includes this change.
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