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LAST WEEK’S NEWS that Social Security recipients will receive a 5.9% cost-of-living adjustment for 2022 might seem like a nonevent. After all, those larger monthly checks will be fully devoured by today’s higher prices.
Or maybe not.
September’s report for the Consumer Price Index (CPI) showed that inflation for medical care services—a big cost for retirees—was quite tame over the past 12 months, rising less than 1%. Seniors also spend significantly less on transportation, so they’re less harmed by the past year’s 15% surge in the cost of new and used cars and trucks, as well as motor vehicle parts.
On the downside, younger retirees—or, at least, those willing to travel during the pandemic—have likely felt the brunt of the 18% jump in the cost of “lodging away from home.” One plus for travelers: A strong U.S. dollar has made overseas excursions less pricey. Those in their 60s usually travel more, while those ages 75 and up tend to spend a higher amount on health care.
Next year may be kinder to all consumers. According to Bank of America analysts, core CPI—which excludes volatile food and energy items—will rise 4.3% in 2021 and 3.1% in 2022. The Federal Reserve, which looks at a somewhat different inflation measure, expects core inflation to be even lower.
What does all this mean? Arguably, those receiving Social Security checks are getting a pretty good deal. They’re receiving a 5.9% raise, while their cost of living appears to be climbing at a slower rate.
The COLA should be based on inflation measures more relevant to retirees.
Be careful what you ask for. The CPI-E is often cited but it rarely is more than .1 or .2% different than CPI-W and in some years it’s less.
SS is nice, but most upper-middle-class retirees have other sources of income, and may get the bulk of their income from these. If they don’t increase as well, a 5.9% increase in SS will still not put you ahead. Pensions are often fixed, and the stock market may or may not continue to perform.
Not sure how we define upper middle class, but reportedly only 7% of retirees pay IRMAA premiums so that implies the vast majority are not upper middle class. Obviously the smaller percentage of total income provided by SS the less the overall COLA impact, but SS is still a significant portion of income for most retirees, especially widows.