HOW INFLATION IMPACTS SOCIAL SECURITY PAYMENTS
Social Security is a major source of income with over 70 million Americans receiving benefits, including nearly 9 out of 10 age 65 and older. Since 1975 these benefits have automatically adjusted for inflation with a goal of helping retirees maintain purchasing power. The calculation is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and is determined by looking at the third quarter of the prior year to the third quarter of the current year. The largest-ever adjustment was in 1980 of 14.3%, however, in recent years it has been much lower. In fact, the cost-of-living adjustment (COLA) has been 0% three times since 2010.
It will come as no surprise to anyone that inflation has jumped recently, and we are all experiencing the effects. The COLA adjustment that Social Security beneficiaries will receive in 2022 is 5.9%, the largest increase in nearly 40 years. The average retirement benefit is $1,565 a month so a 5.9% increase results in roughly $92 a month on average in additional income.
As a side note, the main source of healthcare in retirement is Medicare. Premiums for Part B of Medicare (which covers hospital services such as doctor’s visits) are $148.50 a month for most individuals (this can vary based on income). That premium will be going up $10 a month next year which is an increase of 6.7%. Since Medicare premiums are usually deducted directly from Social Security payments, the average increase in payment is likely to be $82 a month rather than $92.
If you have already filed for Social Security benefits, there is nothing you need to do as the COLA will be automatically included in your payments. Some people who are eligible for retirement benefits (as early as age 62) but haven’t yet started receiving them knowing that by delaying they will receive a larger benefit in the future, have wondered if they should go ahead and file now in order to get the 5.9% increase. This isn’t necessary because once you reach age 62 any inflation adjustments will be included in your future benefit calculation regardless of if you’ve started your benefits or not. In other words, there is no reason to adjust your original Social Security strategy due to the increased COLA heading our way.
If you have questions or would like to speak to me about your Social Security strategy, feel free to reach out at advisor@blakegallion.com.
Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557
