Mainstream media has been making a big deal about Social Security’s cost-of-living-adjustment (COLA) for next year. “Biggest jump since 1983,” according to at least one source.
While it’s a fact that the 5.9% COLA is substantial when compared to prior years, once inflation is factored in, beneficiaries will experience “sticker shock.”
Let’s take a brief look at a few reasons why that will be the case, starting with average payment amounts.
The average Social Security payment is less than you probably think
We’ve mentioned many times that Social Security is only meant to supplement or replace about 40% of your pre-retirement income.
But some Americans might plan on retiring solely on their hard-earned Social Security benefits (they did pay into them, after all). Those people might be in for the first of many shocks if they do. Here’s why…
According to The Sun, the average benefit payment including the newest COLA in January 2022 just won’t amount to much:
If you’re planning to retire on just Social Security and you’re single, you may be forced to live on just $1,657 a month on average, or $19,884 a year. For a retired couple who are both receiving benefits, the average monthly check will increase from $2,599 to $2,753 in the new year. Meanwhile, a widowed mom of two children will receive $3,187 a month in 2022, working out as $38,244.
That’s right, the biggest jump in COLA since 1983 comes down to $154/month for a couple. Anyone planning to retire on Social Security alone should ask themselves, realistically, whether they can survive on less than $20,000 a year.
Now, there are a few standard ways you can potentially boost your payment a little — like delaying your claim, earning more before you retire, and making sure you work a full 35 years — still apply for now.
But even those won’t help you work a miracle. Let’s face it: Social Security just isn’t enough.
Not to mention, looks like the government is determined to make things even worse…
Lawmakers meddling with math could lower your future payments
We’ve also revealed many times how inflation can eat into your COLA each year. (In essence, each adjustment is an attempt to compensate you for higher prices you’ve already paid, so the cart is perpetually running behind the horse.)
Next year’s COLA will be no different. But this time, there’s a twist. Here’s how Congress might make things even worse.
In an effort to “reform” Social Security before a big benefit cut in 2034, there are a few proposals by politicians that aim to replace the inflation methodology used to calculate the cost-of-living-adjustment.
As Wolf Richter explained recently:
As part of the efforts of reforming Social Security, there are now proposals in Congress – including a Bill by Rep. Al Lawson (D-FL), that include provisions to raise revenues – mostly focused on raising the Social Security contribution cap – and provisions to “improve” benefits, including by switching the COLA calculation from CPI-W to CPI Elderly, or CPI-E.
Basically, the “basket of goods” that elderly people might focus on more than younger people (like medical and shelter) are weighted more heavily in the “E” inflation.
But as one graph in Wolf’s article clearly shows, switching to CPI-E for the COLA calculation might backfire by lowering future adjustments. See for yourself:
You can see that the red line (CPI-E) has either been on pace with or severely lagging behind the (CPI-W) shown by the green line. As it stands right now, if “E” doesn’t catch up quite a bit, the COLA for 2023 could end up being a lot less than it would if the current methodology is used.
So, hopefully these lawmaker’s proposals don’t make it through Congress, because those of us saving for retirement already have enough on our plates.
After all, there are already enough limits that ensure your Social Security benefit payment isn’t going to provide a comfortable living…
Two little-known Social Security payment constraints
Even with rising inflation, and the need for some retirees to generate income from working to keep up, if any beneficiary of Social Security makes too much, the “tax man” will take his share, according to Motley Fool.
If you make $25,000 filing single or $32,000 filing married, the IRS will want their cut. In addition, there are 13 states that tax Social Security benefits listed below:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- North Dakota
- Rhode Island
- Utah
- Vermont
- West Virginia
And in addition to taxes on employment income, if you retire before full retirement age your benefits can be withheld if you make too much extra income from working.
So if your retirement relies too heavily on Social Security, then you might be in for a little bit of “sticker shock” once you realize that even a larger COLA doesn’t help much.
Bottom line: Social Security doesn’t offer much security
It’s obvious that solely relying on Social Security and meddling lawmakers to fund your golden years isn’t a good idea. It’s a good idea to educate yourself on your options.
Take a look at your savings and whether they’re properly diversified. Do you have adequate exposure to inflation-resistant investments? If not, consider incorporating “alternative” assets into your savings, like physical precious metals including gold and silver (which can be excellent hedges against inflation).
Whatever you choose to do, we don’t recommend relying on whatever’s left of Social Security, regardless of the COLA calculations, to provide much financial security in the future. Make sure your retirement plan accounts for the crazy economic conditions we’ve seen for a while now (which may continue well into the foreseeable future). Make sure you have a plan you can rely on right now, while there’s still time to make any important changes.
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Depending on the government? You may not be able to purchase your Depends due to lack of money.
Bum rush the CVS just like the joggers do.
Stock up on all the Ensure and Depends you can carry!!!
(…but of course, if you need Depends, you probably can’t carry much Ensure…)
I see you are prophesying a messy end!
Not worried, just gonna but the dip.
My Evergrand bonds are due soon.
Future is looking bright.
Meh.
Interesting conundrum for the proles.
Two words.
Black Market.
It’s never too late to learn to be free.
You will own nothing and be happy
And don’t forget other costs are rising that eat into the “big” 5.9% increase…
Medicare premiums are rising sharply next year, cutting into the large Social Security cost-of-living increase. The basic monthly premium will jump 15.5 percent, or $21.60, from $148.50 to $170.10 a month.
https://www.legacyplanninglawgroup.com/medicare-premiums-to-increase-dramatically-in-2022/
That’s $2,040 per year. I only spend $200 per year on doctors in order to get my meds that I pay for out of my own pocket. That’s $600 per year. So a grand total of $800 per year. I don’t plan on paying for Medicare. I plan on going bankrupt if some huge medical expense comes along.
I pay zero and all it cost me are all the disabilities I need it for(VA).
SS up 5.9% and Medicare up 14.55%
My health insurance has gone from $750 as of 9/30/17 to $1400 on 10/01/21 so cry me a river.
Glad I’m not in that canoe. Living in the inflated states of America is getting hard.
Seems legit.
More like Social Insecurity.
If you compare outrageous Government pensions to social security that alone is a pretext to WAR. 👊👊👊
Why do you think they put so much effort into obfuscating accountability? The entire Executive bureaucracy exists to shield congress from accountability. People are sometimes the stupidest species I know (not you).
But but but….I paid in! They owe me!
You get yours yet Llpoh? I’ll bet you do , all the way over in the Peoples Republic of Oz.
I paid in, right? You wouldn’t begrudge me a return, now would you, when the time might come? I don’t think I am owed it. And I know a Ponzi when I see it.
We who are older paid a lot in, they at least owe us what we paid in plus decades of interest. You collect yet you rag on SS like you are outside the situation. Agreed it is a Ponzi, but you don’t send back your monthly payments now do you?
I still remember my Econ 101 professor diagramming how a Ponzi works and showing how SS is a Ponzi. That was in 1972.
Several years ago I saw a comment to the effect that your first SS check will be your largest. Now I know exactly what the writer meant.