[Editor's Note: Several months after this article was published, the Social Security Administration announced the cost-of-living adjustment (COLA) for 2022 would be 5.9%.]
Social Security cost-of-living adjustment (COLA) for 2022 could likely be 6.2%, the highest it has been in almost four decades, according to a new estimate from The Senior Citizens League (TSCL).
But it is not enough to encourage people to accelerate their retirement any time soon, TSCL Social Security policy analyst Mary Johnson and others said.
Johnson said while the estimated boost in benefits is meaningful, many seniors have indicated in surveys by TSCL that their finances took a hit during the pandemic when the market slumped, and they have no choice but to return to work. In other surveys, many workers have said they cannot afford to retire and will need to work past retirement.
The 6.2% COLA increase, Johnson said, would help people at some level recover, but not enough to help those who have been retired for some time now to completely catch up. “It would only be less than half of the buying power that they lost, but it will mean more going forward,” she said, adding that those who stand to gain the most are new retirees and people who have no retirement savings and depend on Social Security. Noteworthy is that 40% of TSCL members reported in a survey that they had no retirement savings, Johnson said.
Mike Leverty, founder and wealth management advisor for The Leverty Financial Group in Hudson, Wis., also said the estimated benefits increase has not sparked debates about early retirement among his clients. He said while they are surprised at the large increase in COLA, it’s not making a big difference in their clients’ retirement plans.
Leverty said they are finding that clients’ monthly expenses are increasing proportionally, so the rise in COLA is seen as a neutral event with the current inflation. “We just feel like almost everything is keeping up proportionally. So, the increase will primarily offset added expense that they are seeing,” he said.
Johnson explained that the estimate is based on July consumer price index (CPI) data released last week by the Bureau of Labor Statistics, which showed that the CPI index rose 0.5% from June and 5.4% from a year ago.
She said the COLA estimate is significant because it is based on the average CPI data of the three months prior to the announcement in October of the COLA for 2022. “With one third of the data needed to calculate the COLA already in, it increasingly appears that the COLA for 2022 will be the highest paid since 1983 when it was 7.4%,” Johnson said.
COLAs had averaged 3% from 1999 to 2009, Johnson noted. Since the end of the Great Recession, she explained that COLAs have averaged 1.4%, and there were three years when the COLA was zero—in 2010, 2011 and 2016. It was just 0.3% in 2017.