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Getty Images | iStock | zimmytws According to a new projection, the cost-of-living adjustment for Social Security in 2022 might be 6.1 percent due to inflation. According to the nonpartisan advocacy group The Senior Citizens League, which computed the statistic, this would be the largest rise since 1983. It’s also an uptick over last month’s forecast, which predicted a 5.3 percent growth for next year. The latest estimate comes as the Consumer Price Index rose 5.4 percent from a year ago in June, the highest increase since August 2008. Higher food and energy prices were among the factors that contributed to the increase in the inflation rate. Personal Finance has more: How to obtain greater interest rates on your money in the face of rising inflation As the Fed holds rates around zero, there are money moves to be made. How to use muni bonds to create an inflation strategy This aided in raising the projection of the Social Security COLA for 2022. The Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, is used to compute the annual change. The CPI-W gives gasoline an especially high weighting, which helped to boost the COLA estimate. According to Mary Johnson, a Social Security and Medicare policy researcher at The Senior Citizens League, many seniors are also reporting increasing pricing at their grocery stores. Because there are still three months of data to provide before the Social Security Administration decides the official number for next year, the COLA could alter. The Federal Reserve is unlikely to take any action during that time period. On Wednesday, Fed Chairman Jerome Powell stated that the central bank is still “a long way off” from modifying its policies. The COLA for Social Security in 2021 was 1.3 percent. For many retirees, that meant a monthly increase of only $20. According to research from The Senior Citizens League, the increases have resulted in a loss of purchasing power for seniors over time. Last week, a bill was presented in Congress to modify the way the yearly COLA is calculated so that it more accurately reflects the costs that seniors face. Rep. John Garamendi, D-Calif., sponsored the Fair COLA for Seniors Act of 2021, which would change the measure to the Consumer Price Index for the Elderly, or CPI-E, rather of the CPI-W, which is now used. According to Richard Johnson, director of the Urban Institute’s retirement policy program, the CPI-E may better reflect the costs that elders confront because it is based on products that persons aged 62 and older prefer to use, including a larger weighting for health-care costs. From 1982 to 2011, annual cost-of-living adjustments increased by an average of 2.9 percent using current methodologies. According to the proposed legislation, the CPI-E grew by an average of 3.1 percent throughout that time period. Garamendi’s bill has largely Democratic co-sponsors. Republicans, on the other hand, have previously recommended using the so-called Chained CPI, which analyzes how people change their spending when prices rise. According to Johnson of the Urban Institute, switching to the CPI-E would result in an additional increase of around 0.2 percentage points each year over the existing index. “That has a tremendous influence over time,” he said. According to estimates, cost-of-living adjustments based on the CPI-E would raise benefits by 5% after 25 years. However, because it takes years to build, today’s retirees may not notice much of a difference, according to Johnson. However, he believes that the reform is still necessary. “The aim of these cost-of-living adjustments is to keep Social Security’s purchasing power from eroding over time,” Johnson explained. “Benefits can decrease if we don’t use the correct inflation adjuster.” While changing the way the COLA is calculated is a “obvious kind of reform that we should make,” there is one stumbling block, according to Johnson: expenses. “It would exacerbate the trust funds’ already perilous financial situation,” Johnson warned. “It appears that this type of adjustment could be part of a bigger push to alter Social Security.” Moving to the CPI-E was one of President Joe Biden’s campaign plans for Social Security. The Social Security 2100 Act, a bill previously sponsored in Congress, includes that adjustment as well./nRead More

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