On Wednesday, the Social Security Administration announced that members will receive a 5.9% increase in benefits beginning next year.
The increases will affect nearly 70 million recipients of Social Security benefits. Officials hope that the adjustment can help members deal with higher prices caused by inflation.
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Bigger Social Security Checks Beginning January 2022
Beginning January, checks with bigger amounts will arrive for most beneficiaries. However, 8 million recipients of the Supplemental Security Income program will get the bump later this year in December. The program is for Americans with disabilities or who earn little income. Inflation is the main reason why the Social Security Administration will implement a cost-of-living adjustment (COLA). Data from the Bureau of Labor Statistics showed that prices of goods rose by 5.4% on an annualized basis last September. The inflation rate also rose by 0.4% between August and September.
New Social Security Rates based on Increase In Average Wages
The agency issued a statement where it announced its adjustments. “Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $147,000 from $142,800,” it said yesterday.In addition, the agency announced that beneficiaries will receive a notice about the adjustment this December. Typically, COLA increases range between 1 to 2% annually. During the Great Recession in 2009, benefits went up by 5.8 percent for 50 million people. Prior to this year’s adjustments, the 2009 increase was the largest rate increase in the last 25 years.
The Increase Will Only Offset The Rise in Prices of Goods
Even as a nearly 6% increase would look very attractive, inflation has largely dampened any potential gains. Patrick Hubbard, a research associate for the Center for Retirement Research, said the increase doesn’t change anything. “Everything is 6% more expensive these days and is only the minimum needed to maintain the purchasing power that you’ve had all along,” Hubbard told CNBC.Mark Zandi of Moody’s Analytics agrees. The company’s chief economist said that higher prices are a result of the pandemic-infused disarray. He added that experts expect inflation to return to 2% levels in 2022 as supply and demand stabilize.
Medicare Will Also Water Down Effects of COLA
In addition, Medicare (part B) and taxes can also offset the increase in social security benefits. According to Hubbard, these two factors also increase every year. Part B premium payments usually get dedicated from the monthly checks of Social Security beneficiaries. The actual amount for Medicare Part B depends on the income. In 2021, the monthly premium of Medicare B was at $148.50 for single individuals earning up to $88,000 income. For married couples, the threshold is at $176,000. Social Security benefits increase is around 2.2% on average. In comparison, Medicare Part B premiums go up by 5.9%. As a result, the COLA increase of 5.9% is an exception and not the rule. “There is this increase in the benefit, but because it’s eroded by Medicare premiums, it’s not nearly fast enough to keep up with what inflation would be,” Hubbard remarked. Watch the Yahoo Finance video reporting that Social Security benefits will increase by 5.9% for 2022:
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