The Social Security Administration is expected to announce a cost of living adjustment, or COLA, of at least 8% Thursday amid a rising inflation rate that has been punishing for Americans on fixed incomes.
The annual adjustment is forecast to be the largest one-time increase since 1981, and the largest experienced by beneficiaries alive today. The nonprofit Senior Citizens League predicts an adjustment coming in at 8.7%, implying that Social Security recipients could see an increase of about $144 starting Jan. 1, 2023. The increase that took effect this year was 5.9%.
The annual adjustment is calculated by averaging inflation readings among urban wage earners and clerical workers from July, August and September. Inflation readings in those first two months came in at approximately 9.1% and 8.6%.
Despite the expected increase, the methodology the SSA uses to calculate the annual adjustment could still leave most older people financially vulnerable, according to Mary Johnson, policy analyst and editor at the Senior Citizens League. That’s because the strategy puts too much emphasis on gasoline and transportation costs, she said — items that retirees spend less money on compared with food, health care and housing. Johnson has estimated that the average retiree benefit of $1,656 per month is short about $43.80 per month on average, and by a total of $417.60 year to date, given relevant inflation data. For 2022, the year-on-year inflation rate among urban wage earners and clerical workers has averaged 9%.
“Indications are that the COLA will not reflect pockets of persistently high inflation affecting retired and disabled Social Security recipients,” Johnson wrote in a recent note. “That puts tens of millions of retirees at risk of continuing to fall behind.”
A spokesperson for the SSA did not immediately respond to an emailed request for comment.
The Federal Reserve has acknowledged the pain inflation inflicts upon on individuals who receive Social Security benefits.
“Everyone — particularly people on fixed incomes and at the lower part of the income distribution — are better off with stable prices,” Fed Chair Jerome Powell said in a speech in May. “And so we need to do everything we can to restore stable prices. We’ll do it as quickly and effectively as we can.”
The Fed has sought to address inflation through a series of interest rate hikes to cool off demand in the economy.
Thanks to an unusual quirk, Social Security beneficiaries can expect to realize the full COLA increase. In many years, the annual adjustment was eaten up by increases in the cost of Medicare Part B, the unit of Medicare that pays for doctor and hospital outpatient services.
But according to Johnson, Medicare premiums are set to stay flat or even decrease this year because of a large increase last year tied to a new calculation in the cost of an Alzheimer’s treatment.
“Such a redetermination of the existing Part B premium is unprecedented,” Johnson wrote in an August note.
Johnson wrote that retirees and people on fixed incomes have indicated they have been spending down their savings to keep up with price increases, leaving them financially vulnerable. And the expected cost of living adjustment could still be inadequate.
“The lifeboat is leaking and taking on water, leaving older Americans at risk of financial drowning,” Johnson wrote.
Source: | This article originally belongs to Nbcnews.com
