Social Security: Could the COLA Increase Cost You Money?
Social Security recipients are getting a big raise next year thanks to a 5.9% increase in their monthly payments, which is the highest Cost-of-Living Adjustment (COLA) in nearly four decades. But they still might end up on the short end of the financial stick because of high inflation.
Social Security 2022: How the COLA Will Increase Benefits for the Average Senior Couple
Social Security Schedule: When the First COLA Checks Will Arrive in January 2022
The COLA goes into effect with this month’s benefits, CBS News reported, but those benefits won’t be paid until January. The payment dates are determined by the recipient’s birthdate: Those born on the 1st through the 10th of the month will get their COLA-adjusted payments on January 12; those born on the 11th through the 20th will get their payments on January 19; and those born after the 20th will get their payments on January 26.
The hefty COLA for 2022 came in response to this year’s skyrocketing inflation and represented a big increase over the past couple of years, when the annual COLA adjustment has been closer to 1%. But even a 5.9% increase is no match for spiraling prices.
In November, U.S. inflation hit a 39-year high as consumer prices for the month rose 6.8% from the previous year, the Wall Street Journal reported. Gasoline prices rose nearly 60% in November, while food prices have climbed about 6%. Meat, poultry and other proteins climbed almost 13%.
“If they want to buy meat, or if they are buying gas or have home heating fuel, that [COLA] increase is going to get crushed by those expenses that have gone up,” Kelly LaVigne, vice president of consumer insights at Allianz Life, told CBS News.
Senior citizens might feel the inflationary pain even more than the rest of the population because of rising health care costs, caused in part by COVID-19. About one-quarter of Americans say rising inflation is the single biggest threat to their retirement plans, according to a new Allianz survey, which is up from 8% the previous year.
“Retirees, anybody living on a fixed income, need to be aware that the 5.9% may look like a bigger increase than we’ve ever gotten,” said Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League, an advocacy group. “But once they go through their household budget, they will realize it still won’t pay for all the increasing bills.”
In an article on the Senior Citizens League website a couple of months ago, Johnson noted that higher Medicare Part B premiums “could absorb a significant portion” of the COLA. She also noted that Medicare Part B and Part D premium surcharges could absorb most, if not all, of the COLA.
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Year in Review: The COLA Increase and Other Big Social Security Decisions From This Year
Meanwhile, a higher COLA could lead to higher taxes on Social Security benefits and a reduction in SNAP (Supplemental Nutrition Assistance Program) benefits.
“Although the increase in benefits is substantial, so are the offsetting impacts, because other associated factors could act to reduce your net Social Security benefit income in different ways,” Johnson wrote.
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