Why raising the cost of living by 6% inflation for Social Security could be a double-edged sword
Social Security benefits get a boost for 2022, potentially the biggest increase in the past 40 years. While the annual increase can be as high as 6.2% due to inflation, that monthly check may not go as far as you think.
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The Social Security Cost of Living Adjustment (COLA), which is calculated annually using the Consumer Price Index for urban and office workers, will perform the calculation for 2022 based on third quarter data, according to CNBC. The AARP also noted that the Social Security Administration typically announces the amount of the annual adjustment in October. The benefit increase usually takes effect in January.
While a 6% increase may seem substantial, it doesn’t necessarily mean more income. “Everything is 6% more expensive these days and is only the minimum necessary to maintain the purchasing power that you always have,” Patrick Hubbard, associate researcher at the Center for Retirement Research at Boston College, told CNBC.
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According to a study by the Center for Retirement Research, two other factors that may reduce the value of this increase are Medicare Part B premiums and taxes. These factors also increase each year and Part B premium payments are typically deducted from the premiums. monthly checks from social security beneficiaries. The amount someone pays for Medicare Part B depends on their income. As of 2021, the monthly premium is $ 148.50 for singles with incomes of up to $ 88,000 and married couples with up to $ 176,000. CNBC also mentioned that from 2000 to 2020, Social Security benefits increased an average of 2.2% per year, while Medicare Part B premiums increased 5.9%.
“There’s this increase in the benefit, but because it’s eroded by health insurance premiums, it’s not fast enough to keep up with what inflation would be,” Hubbard told CNBC.
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Another factor contributing to higher COLA estimates is the rise in prices in 2021. The Labor Department announced earlier this month that July consumer prices were up 5.4% year-on-year. “The higher prices reflect the dismay caused by the pandemic,” said Mark Zandi, chief economist at Moody’s Analytics, according to AARP. He went on to explain that the inflation rate is expected to drop to around 2% in 2022 as supply and demand balance out, making the potential 6.2% increase in the market. COLA the exception and not the rule.
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Last updated: August 25, 2021
This article originally appeared on GOBankingRates.com: Why Raising the Cost of Living by 6% Inflation for Social Security Could Be a Double Edged Edge