COLA projections for 2022 are rising, lofted by the worst bout of inflation in decades. That’s a good thing for the nation’s 60 million Social Security recipients, say observers and advocates — with a few asterisks.
Late last week, The Senior Citizens League raised its estimate for next year’s Social Security Cost-of-Living Adjustment to 6.1%, which would be the
That could go even higher by the time the Social Security Administration announces the rate this fall, says Mary Johnson, Social Security and Medicare policy analyst at the group. That’s in line with
But in a stop-and-start COVID-19 recovery economy, much can change before the Social Security Administration announces the final adjustment in October ahead of a Jan. 1, 2022, start date.
“I’ve seen numbers out there ranging from roughly 4% to 6%,” says Shai Akabas, director of economic policy for the Bipartisan Policy Center, “Regardless, it will be higher than usual and reflect the fact that prices have bounced back from last year's deep recession."
The COLA formula proves its worth in inflationary times like these, says Alicia Munnell, director of the Center for Retirement Research at Boston College. “The point of COLA is to compensate people for the increases in their cost of living as measured by the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) … it's not a good thing or bad thing. If prices go up, you get a COLA raise. If they don’t, you don’t.”
But Munnell — who says a 6.1% hike sounds reasonable at this point — finds a flaw in its backward-looking stance.
“It comes after the fact,” she says.
Akabas agrees.
“Recipients are facing increased prices right now, but their benefits will not reflect that there was a change in some prices until next year, so that that becomes a pressure on the household budgets,” he says.
While the extra monthly income will be welcome to seniors trying to keep up with rising prices, Johnson points to a potential Catch-22 for some recipients.
“Low-income retirees … might lose SNAP and other income-related programs if federal poverty [rates are] not adjusted by the same amount,” she says. “Even though we now have a 1.3% COLA, there were still people who were kicked off Medicare rolls.”
David Certner, legislative counsel for AARP, says the COLA is particularly vital to retirees in times like these as most of their income sources are not indexed to inflation. Certner recognizes, however, that many investors are poised to take a hit from prolonged inflation.
“Although we haven’t seen it yet, one of the pieces that often goes along with [inflation] is what kind of returns people get on their fixed-income investments,” he says. “Obviously, higher interest rates are not good if you are borrowing money or if you're paying higher interest rates.”
Against this backdrop, President Joe Biden fired sitting Social Security Commissioner Andrew Saul last Friday after he declined Biden’s request to resign. Saul, a Trump administration appointee whose term was set to expire in 2025,
Akabas, who has worked with Kijakazi, sees her, or her successor, concentrating on administrative priorities as opposed to policy initiatives, one of which will be reopening and restaffing the hundreds of Social Security offices across the country.
As far as funding issues posed by the pandemic and the ensuing inflation, Akabas notes that “revenues have been coming in much stronger than many of us expected when we were heading into this recession last year, so it's too early to tell if there will be any significant change on the cost side … but I think much of that has been tempered by the strong figures that we've seen on the revenue side of the payroll tax.”
Munnell agrees that Social Security financing will take a low number on legislators' to-do lists.
“Just last week, we've got floods in Germany, fires in the West and the pandemic,” Munnell says. “I just don't think it's going to rise to the top of anybody’s agenda right now.”
Although COLAs have stayed low through the 2000s and have averaged 1.4% for the last 14 years, Johnson notes there have been inflationary periods when Social Security commissioners have considered switching to a chained CPI, which tends to measure the rate of inflation growth more slowly.
“Anytime the COLA is high, it sparks talk of lowering the rate,” she says. The Senior Citizens League supports a guaranteed minimum COLA of 3%. Getting it all right, Johnson says, “is one giant domino game. One decision affects 20 others.”
