Why the COLA increase for next year is nearly worthless when you factor inflation in: This year’s cost-of-living adjustment (COLA), which is designed to ensure recipients of Social Security and other federal benefits are able to afford food and basic necessities as inflation reaches a forty-year high, may not be sufficient.
Earlier this month, the Senior Citizens League predicted an 8.6% increase in payments over the next year – the biggest rise since 1981. However, the state of the economy and the way COLA works means that recipients could still find themselves struggling, with the cost of food, gas, and consumer products still rising.
Who Benefits from the Cost-Of-Living Adjustment?
Only those who receive Social Security are eligible for the COLA increase. This includes anybody aged 62 or older and retired for the last five years, or age 55 and retired for ten or more years. Other recipients may also include a disability retiree who has been retired for five years, or the spouse of a deceased retiree receiving lifetime benefits.
Anybody who receives Social Security payments will benefit from a Cost-Of-Living adjustment automatically, as the government works to ensure that recipients can afford to live.
How Is COLA Decided?
Cost-of-living adjustments are determined based on inflation, which is documented through the consumer price index. The rumored 8.6% COLA increase is based on consecutive increases of over 8% in the consumer price index through 2022, with inflation increasing by 8.3% in April this year.
Last October, the Social Security Administration set the COLA after consumer prices began to rise. Social Security payments were increased by 5.9%, but with inflation continuing to increase, it wasn’t enough.
Is It Enough?
Not only was this year’s cost-of-living adjustment several percentage points short of inflation experienced throughout the year, but even if the next payment increase exceeds 8%, recipients must also wait until the next increase is implemented to benefit from it.
That means almost 70 million people will feel the impact of inflation this year until the next payment increase is implemented next year. The 2022 COLA payments came in January of this year, meaning the rumored 8.6% increase will come into effect in another eight months.
Peter Anastasian, the senior vice president of the Wealth Enhancement Group, expressed doubt that this year’s COLA will be sufficient for seniors and other Social Security recipients to bear the cost of living.
“The increase in Medicare premiums increased substantially as well, offsetting a large part of the Social Security increase,” Anastasian told ConsumerAffairs, adding that the cost of basic necessities have increased more than 10% year-over-year, with seniors feeling the impact of inflation this year more than at any other time.
If next year’s COLA does exceed 8%, it will be a help – but it won’t make up for the year of struggle that seniors faced this year. Whether it will be enough next year is yet to be seen, however.
Jack Buckby is a British author, counter-extremism researcher, and journalist based in New York. Reporting on the U.K., Europe, and the U.S., he works to analyze and understand left-wing and right-wing radicalization, and reports on Western governments’ approaches to the pressing issues of today. His books and research papers explore these themes and propose pragmatic solutions to our increasingly polarized society.