Social Security Will Get a Boost of 5.9% for 2022
What sort of increase in Social Security benefits will benefits recipients see for 2022? The official word is out, and there will be a record-breaking 5.9% cost of living adjustment (COLA) to benefits for next year, according to the Social Security Administration.
In 2021, Social Security had a 1.3% COLA to benefits, which was slightly smaller than the 1.6% increase of 2020.
But in 2022, Social Security recipients will get a boost in benefit payments that is over four times the average COLA from these past two years. This coming COLA of 5.9% is also the largest increase in almost 40 years.
This has been done in an effort to keep up with the runaway inflation that has gripped America. The consumer price index shows that the price of retail goods has risen by an astounding 5.4% in 2021, at the time of this writing.
The pandemic has also disrupted much of the United States’ economic infrastructure and caused job losses. Retirees who depended on part-time work and other income sources were hit, so the COLA adjustment will help offset the decline in their incomes.
How Are Social Security COLAs Calculated?
The cost of living increase is calculated each year based on the Consumer Price Index for Urban Wage Earners and Clerical Workers. This is also known as “CPI-W” for short.
The CPI-W is calculated each month by the Bureau of Labor Statistics, using eight major categories of spending and numerous subcategories. Each category and subcategory are assigned an appropriate weighting. A COLA is implemented in any year where the index is measurably higher than it was the year before.
One major driver of the spike in the COLA for 2022 is the price of oil and other forms of energy. Oil and gas prices have hit multi-year highs, according to the Bureau of Labor Statistics.
The prices of food, medical care, and shelter have risen substantially as well. Costs of beef, eggs, and poultry has increased by double-digit percentages. The projected increase in the cost of Medicare Part B premiums, by $10 per month in 2022, is yet another example.
How Much More in Benefits Will Recipients Get?
The COLA increase means that the average Social Security recipient will get a boost of $92 per month in their benefit, taking it to a monthly $1,657. That is an estimate by the Social Security Administration for benefit recipients overall.
Social Security by Itself Isn’t Enough
Social Security is a dependable source of income, but most often it’s not enough by itself to cover all of your living expenses. You will need other sources of reliable income in order to keep up your lifestyle in retirement.
Retirees who are looking for ways to bolster their income may want to consider annuities as one possible alternative. Annuities can function as a type of “private pension,” as they can pay a stream of income that someone can’t outlive. In fact, an annuity is the only thing on the planet besides Social Security that can truly pay you this guaranteed income for life.
Annuities provide many other benefits such as tax-deferred growth, exemption from the probate process, and protection from creditors in quite a few cases.
What About Inflation?
No one can predict what might happen with inflation for the foreseeable future. But what could you do to preserve your money’s buying power if it does continue?
No strategy is foolproof. Everything has strengths and limits. You may want to visit with an experienced, independent financial professional to discuss different options as well as the pros and cons of each one.
If you believe that you can have more peace of mind coming from the contractual guarantees of annuities, here are a few options in this area to consider. You might want to coordinate these guaranteed options with other strategies in your overall plan.
Annuity Strategies to Guard Against Inflation
Some fixed index annuities have guaranteed income riders (usually for an additional fee) that give you some flexibility with your money. You can “ladder” several of these annuities over time so that you aren’t committed to just one set payment. Other fixed-type annuities can also help here, from immediate annuities to deferred income annuities.
If you prefer not to give up some access to your money or to turn on an income rider, you might also be able to leverage the growth of a fixed index annuity to your advantage. While the growth isn’t guaranteed, your money can earn interest based on changes in the annuity’s underlying index benchmark.
Historically, these interest earnings have generally been above inflation. Over time, you can take free withdrawals from your indexed annuity contract, as needed. Most contracts give you free withdrawals of up to 10% of your contract’s value per year.
This can be a nice guard against inflation while giving you some flexibility and nice growth potential for your money.
Some Final Thoughts
Retirees will undoubtedly enjoy the large COLA increase in decades once it hits their bank accounts. But even this substantial adjustment will not be enough to counter the effects of inflation that have been active for some time now.
Retirees looking to fill the income gap beyond Social Security benefits can look to annuities as a viable alternative to the stock market or the low interest rates being paid from CDs and bonds.
Consult your financial advisor for more information on Social Security benefits and how different strategies for claiming them can affect you. If you are looking for a financial professional to help you with this important decision – or you want another opinion of your existing retirement strategy – then no sweat.
Many independent financial professionals are available at SafeMoney.com to assist you. Use our “Find a Financial Professional” section to get started and connect with someone directly. You can request an initial appointment to discuss your financial situation and explore a potential working relationship. Should you need a personal referral, call us at 877.476.9723.
