Social Security recipients may get biggest cost-of-living bump in almost 40 years
The 69 million Americans who collect Social Security are on track to get the largest cost-of-living hike since 1983, with one advocacy group for senior citizens projecting a 6.1% increase to benefits due to surging inflation.
The bad news: Recipients will have to wait for that bump because the Social Security Administration adjusts its payments only once a year, starting with December benefits that are paid in January. That means seniors and other Social Security beneficiaries wouldn't receive a cost-of-living adjustment (COLA) until January 2022.
In the meantime, prices for everything from gas to groceries are rising at a time when Social Security recipients got what was among the most meager of COLA adjustments in recent years — a 1.3% increase for 2021. As the pandemic eases, a rapid reopening of the economy is fueling pent-up spending for goods and services that in many cases remain in short supply, prompting inflation to jump 5.4% in June compared with a year earlier.
Based on June's inflation numbers, Social Security recipients next year will see the biggest COLA increase since 1983, when a 7.4% bump went into effect, according to a new forecast from the Senior Citizens League, a nonpartisan group that focuses on issues relating to older people.
One meal a day
Some of the nation's seniors already are struggling with higher inflation, which is eating into the buying power of their monthly benefit checks, said Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League. One retiree wrote to her group to say they had to cut back to eating one meal a day because of higher costs for medical care and other expenses, Johnson noted.
The Social Security Administration will announce its annual COLA adjustment in October, which is based on the average rate of inflation over the prior three months. To be sure, inflation could recede during the summer and early fall, potentially resulting in a lower COLA rate for 2022 than the Senior Citizens League is forecasting.
Everything car-related is driving up inflation, including gas at the pump, rental cars and both new and used cars. In the index that's used by the Social Security Administration to set the annual COLA — the Consumer Price Index for Urban Wage Earners and Clerical Workers — gasoline is heavily weighted.
Other items that are pushing up inflation this year include clothing, which is up almost 5% compared with a year earlier, and electricity costs, which increased more than 6%, according to latest government data. One area where people are seeing some relief is in medical care services, which rose only 1% compared with a year earlier.
But longer-term, health-care costs have increased at a faster pace than inflation, an issue that's long hurt retirees because they tend to spend more on health care than younger people. Some advocates say a more accurate reflection of spending by retirees is the so-called Consumer Price Index for the Elderly, which is more heavily weighted toward healthcare.
1970s inflation?
Economists predict that inflation could slow later this year, but that depends partly on supply bottlenecks easing, according to Oxford Economics.
"The big concern is that current high inflation gets built into consumers' and businesses' expectations, leading to higher long-run inflation, as happened in the 1970s," Gus Faucher, chief economist at PNC Financial Services Group, said in a research note.
But that "eye-popping" inflation might not last given that only a handful of products account for the bulk of higher prices, including used cars and gasoline. And prices were weak a year earlier when much of the U.S. economy was still shuttered due to the pandemic, which may lead to an overstatement of inflation, Faucher added.
Even so, Social Security payments had lost buying power even before this year's higher inflation, according to a report from the Senior Citizens League. Government retirement benefits have lost about one-third of their buying power in the two decades since 2000, the group found. That's due partly to health expenses such as Medicare premiums rising much faster than inflation.
There are some efforts to overhaul how COLAs are calculated. Representative John Garamendi, a Democrat from California, introduced a bill this month that proposes the Social Security Administration consider a different measure of inflation that better reflects seniors' real expenses.
Under the bill, the SSA would be required to use the Consumer Price Index for the Elderly, which rose at an average annual rate of 3.1% from 1982 to 2011, compared with the 2.9% increase for the index that's currently used.