What To Expect From the Next COLA Increase – As inflation surges to a forty-year high and shows no signs of slowing down, Social Security recipients will be pleased to hear that the Social Security Administration is preparing the biggest increase in benefits in decades. The move is designed to ease pressure on those who receive Social Security benefits, helping them pay for food, fuel, housing, and more.
Here’s what you need to know about the next historic COLA increase.
What Is COLA?
The Social Security Cost-Of-Living-Adjustment, COLA, is an increase in Social Security payments made to retirees and people with disabilities who rely on these payments every month. The purpose of COLA is to ensure that recipients receive sufficient funds to live, and the adjustments in payments are made in line with inflation.
“The purpose of the COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation,” the Social Security Administration says on its website.
The next COLA is expected to be announced in October of this year, and given this year’s historic inflation, the figure is expected to be significant.
Between 2000 and 2020, the average COLA was around 2% – a marginal increase that kept the payments in line with the gradually increasing cost of living. Last year, it was higher, at 5.9%. Some analysts say that in October, the next COLA could reach 10%. Some even say it may reach 11%.
How The Increase Is Calculated
The Social Security Administration calculates each COLA based on the Consumer Price Index. Each month, the Consumer Price Index report reveals how much prices have increased for a basket of consumer goods compared to the year before. Each year, CPI data reveals how much prices have gone up over the entire year, and the COLA will reflect that information accordingly. Specifically, the Social Security Administration uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to determine the size of its annual adjustments.
While the data is not yet fully available, the CPI-W already shows a 9% increase over the last year – meaning that the next COLA is likely to be higher than this figure. If that’s the case, it would be the biggest increase since 1981.
Could It Backfire?
Some warn that a dramatic COLA increase could backfire on seniors, putting them in a worse financial position.
Married seniors who file their taxes jointly and earn over $44,000 may have to pay taxes on as much as 85% of their benefits, according to the Social Security Administration. Those earning between $32,000 and $44,000 could pay taxes on as much as 50% of their benefits, and individuals earning between $25,000 and $34,000 could also pay taxes on 50% of that income. Individuals earning over $34,000 may also pay taxes on as much as 85% of their benefits.
A dramatic COLA increase could push some of these seniors into new tax brackets, forcing them to pay more tax on more of their benefits.
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.