Most years, Social Security Administration (SSA) announces cost of living adjustments (COLA). The intent behind COLA is to help Social Security retirement and disability recipients keep up with the rising prices of inflation.
Cost of living increases are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W is the measure of price changes in goods and services. Every year, SSA looks at the CPI-W for the third quarter of the year before and compares it to the current year. If prices increased, benefit amounts will be increased for the following year.
SSA recently announced its COLA for 2022. The biggest increase since 1982, benefit payments will grow by 5.9%. Supplemental Security Income (SSI) beneficiaries will see their payments increase on December 30, 2021, while Social Security Disability Insurance (SSDI) benefits will increase in January 2022.
The increase will bump the average monthly retirement benefit from $1,565 in 2021 to $1,657 in 2022, almost an additional $100 per month. SSI will increase from an average of $794 per month in 2021 to an estimated average of $841 in 2022.
COLA started in 1950, and beneficiaries saw another increase in 1952. Adjustments continued for twenty years after that, but each increase required Congressional approval through legislation. Congress decided to link COLA to a rise in consumer prices and increase automatically if applicable in 1972. The first automatic COLA increases took effect in 1975, and benefit amounts have increased every year but 2009, 2010, and 2015.
Despite the large increase, many are worried 2022’s COLA will not be enough to combat the loss of seniors’ purchasing power, specifically because of rampant increases in health care costs, housing, food, and utilities. In just 20 years, it is estimated that senior citizens have lost 30% of their purchasing power because COLAs have not been substantial enough for them to keep up with inflation.
SSA also announced a 2.9% increase to the wage base, or the threshold up to which employees pay Social Security taxes. The maximum amount of an employee’s wages that will be subject to Social Security taxes in 2022 is $147,000; in 2021, it was $142,800.