Social Security retirees are getting their biggest raise in two decades in 2022. That’s good news, isn’t it? Unfortunately, the 5.9% cost of living adjustment (COLA) that seniors will receive in the next year is actually really bad news for two main reasons.
Here’s why seniors aren’t excited about the benefits they’ll experience next year.
1. Cause of COLA
The biggest reason a big Social Security increase is actually bad news is that the increase is so big Just Because inflation is too high. Inflation refers to price increases that occur over time. It leads to a fall in purchasing power, unless income rises accordingly.
Social Security’s Social Security agreements are meant to help retirees’ incomes keep up with inflation, since they don’t get the salary bumps that incumbent workers do.
COLA is calculated on the basis of price changes on an annual basis as reflected in a specific price index called the Consumer Price Index for urban wage earners and clerical workers (CPI-W). Since CPI-W showed that prices for goods and services rose a lot in 2022 compared to 2021, retirees will end up receiving a significant increase in Social Security benefits.
The problem, however, is that Social Security is not the only source of income for most retirees. Most of the elderly Also Need to rely on savings. And inflation is really bad news for savers because it means the purchasing power of their nest egg is going down.
Most seniors have conservative investment portfolios, because they cannot take significant market risks when they rely on their investment income to support them. This means that they do not earn the same high returns as younger investors with greater exposure to stocks. When inflation is too high, it reduces their actual returns even more. It could eventually mean that they have to take more money out of their accounts to maintain their standard of living – putting them at greater risk of default later in life.
Unfortunately, this means that the factor that led to a significant increase in Social Security can leave seniors stuck in the choice between facing a decline in their current quality of life, because their retirement account distributions don’t buy much, or risking failure. later in life.
2. COLA . SIZE
While this news is bad enough, there is another problem.
Social Security COLA aims to preserve the purchasing power of Social Security benefits, but it has not. The prices of essential goods purchased by the elderly have risen faster than Social Security benefits contracts. And since 2000, interest has lost a third of its purchasing power as a result.
Since some recent measures indicate that inflation caused prices to increase by more than 5.9% compared to last year, COLA is likely to decline again. This means that Social Security benefits will not be what they were in 2021, even with the big increase.
With both primary income sources negatively affected by current inflation levels, seniors may face some tough choices in 2022. But the good news is, by budgeting carefully and implementing techniques like taking full advantage of credit card rewards and deep discounts, retirees may not be left facing Long-Term Financial Consequences – As long as they realize that an increase in Social Security isn’t actually great and isn’t promising news.