The final round of one of the biggest Social Security checks ever to hit retirees’ accounts arrives this week.
The checks, which began going out to more than 65 million beneficiaries earlier this month, reflect an 8.7% cost-of-living adjustment (COLA), the most in 41 years. They will amount to between $140 and $145 on average more a month, according to estimates from the Social Security Administration.
And while Mary Johnson said that will help a lot of households to buy an extra week or two of groceries, she also said that, with soaring inflation, it might not be enough for retirees who rely on Social Security to recover from shortfalls since the pandemic.
An analysis by Johnson, the Social Security and Medicare policy analyst for the Senior Citizens League, reveals that since the start of the pandemic, Social Security benefits have fallen short of cost-of-living adjustments by about $1,054 on average through 2022.
“Catching up this year is uncertain because that will depend on prices coming down significantly,” Johnson said.
Based on the most recent data from the Bureau of Labor Statistics, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) was 6.3% for the 12 months through December. Lower inflation means the Social Security shortfall would be only $38.70 for January, Johnson said, before the deduction for Medicare Part B premiums, which is $164.90.
The Social Security gap is expected to close as inflation comes down. But Johnson said she can’t say whether it would catch up with the $1,054 lost so far for the average benefit, though she believes it unlikely. “We are looking at inflation that has not happened in 40 years and I don’t really know what to expect.”
Johnson added that advisors should be guarded in counseling clients. “They should be very cautious about saying that retirees should be able to recover because that may be giving some of their clients unrealistic expectations,” she said. “It would have to be zero for people to get the full amount to help them recover and that’s really only the amount for inflation for one year instead of two,” she said.
Because the shortfall occurred over a two-year period, from January 2020 to December 2022, Johnson said it will be extremely difficult for retirees to recover. “We are looking at a historic financial catastrophe of sorts that has happened to this particular group of retirees,” Johnson said, noting that it is similar to what happened during the Great Recession. “It took a very long time to recover,” she said.
In analyzing past COLAs, Johnson found that in 2020, the 1.6% increase kept pace with inflation up until March when Covid hit and shut down the economy. But that was a year when the average benefits and COLA matched up, Johnson said. Beneficiaries ended the year ahead by about $53 before deductions for Medicare Part B premiums.
In 2021, the 1.3% COLA fell short on average by 261%, leaving recipients with little inflation protection. The average benefit fell behind $612 for the year, or $51 per month, before the deduction for Medicare Part B premiums of $148.50 per month (or $1,782 for the year).
In 2022, the 5.9% COLA was short on average by 46% per month. The average benefits fell $495 for the year, or $41.25 per month, before the deduction for Medicare Part B premiums of $170.10 per month ($2,041.20 for the year). This was also one of the largest increases in Medicare program history.
Johnson warned that “if we have a rapid deflation or disinflation, it could very well be that we don’t have a COLA next year.” She noted that this has happened three times before, in 2010, 2011 and 2016. In 2017, the COLA was just 0.03%, she noted.