WASHINGTON (AP) — — Millions of retirees on Social Security will get a 5.9% boost in benefits for 2022.
The biggest cost-of-living adjustment (COLA) in 39 years follows a burst in inflation as the economy struggles to shake off the drag of the coronavirus pandemic.
"That cost-of-living adjustment is based on something called the Consumer Price Index, or let’s just call it the CPI or inflation," said Bob Doyle, the president of Doyle Wealth Management in St. Pete. "This year, we have seen higher than average inflation, so the Social Security benefits that those beneficiaries receive, it’s going to be increased.”
The COLA increase amounts to $92 a month for the average retired worker, according to estimates released Wednesday by the Social Security Administration. With the increase, the estimated average Social Security payment for a retired worker will be $1,657 a month next year.
The Social Security Administration notes that the COLA is meant to help offset rising costs.
"Look around us. It’s supposed to keep up with the cost of living, or that Consumer Price Index, and prices are going up," said Doyle. "Prices are going up for a gallon of gas. Prices are going up for the café mocha you stop and get on the weekends or on their way to work. Prices are going up all around us."
The increase affects household budgets for about 1 in 5 Americans, nearly 70 million people, including Social Security recipients, disabled veterans, and federal retirees.
Policymakers say it's a safeguard to protect benefits against a loss of purchasing power and not a pay raise for retirees.
Over the last 10 years, the COLA has averaged about 1.7% annually as inflation remained low. Financial experts further explained the significant increase for next year.
"A lot of this has to do with the inflationary environment that we’re in right now that was brought on by COVID, very frankly," said Celine Pastore, a retirement advisor with SimplePath Retirement. "We had the economy shut down for so long, then we had this really big demand. We couple that with the fact that we have shortages throughout the country in just even getting materials in."
Financial experts say Social Security benefits are not intended to be your sole resource when you retire, reminding you to keep in mind your other expenses too, including any potential increases to things like Medicare premiums. Doyle says with the increase, the idea is not to see it as a windfall, but as an opportunity to not fall behind.
"What people don't sometimes understand is that this increase in the benefit is because the cost of living is going up. All of those expenses that you’re incurring are going up, so the intention here is just for the beneficiary of Social Security, that recipient, just to remain even, just to continue to be able to break even," said Doyle.