On October 13, the Social Security Administration announced that the annual cost-of-living adjustment (COLA) will rise by 5.9% starting in January 2022, the largest increase since 1983. Compare this to the modest 1.65% average annual increase over the past decade.
This increase translates to an average boost of around $92 per month for individuals receiving Social Security retirement benefits.
What’s driving the increase? The same thing that’s making prices higher at the gas pump and the supermarket: Inflation. The COLA reflects the change in prices of a market basket of goods as determined by the Consumer Price Index for Urban Wage Earners and Clerical workers.
The 2022 COLA is so large because inflation has risen significantly in 2021, mainly due to rising energy prices, global supply chain issues and labor shortages resulting from COVID-19 outbreaks.
Is the upcoming COLA increase a record-setter? Hardly. The largest COLA was 14.3%, in 1981. 2022’s increase shares 8th place with the 5.9% rise in 1977.
Medicare will consume some of your COLA
While the COLA increase is good news for seniors who are struggling to make ends meet, it’s less so for those who are on Medicare. That’s because monthly basic Medicare Part B premiums, which are usually deducted from Social Security payments, are projected to rise from $148.50 to $158.50 per person in 2022. And the average basic monthly premium for Medicare Part D drug coverage is expected to rise by 4.9% next year. Combine these increases with the ever-increasing cost of healthcare and prescription drugs and rising prices in general and the actual take-home benefit of the COLA will seem far less than expected.
If you’re on Medicare right now but aren’t receiving Social Security benefits yet, the prospect of future inflation-tied COLAs might tempt you to sign up before your full retirement age. But, unless you really need the money, it's generally better to hold off signing up for Social Security as long as possible, since each year you delay can increase your annual benefit by 8%. If you’re on the fence, working with a financial advisor can help you figure out how these and other pieces of your retirement planning jigsaw puzzle fit together.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
This article was authored by Joelle Spear and Jeffrey Briskin. Joelle is a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. She offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. She can be reached at 508.598.1082 or firstname.lastname@example.org. Jeffrey Briskin is Director of Marketing at Canby Financial Advisors.
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