Social Security and Supplemental Security Income (SSI) benefits for roughly 70 million American seniors will rise by 5.9% in 2022, the highest increase in the benefit amount seen in nearly 40 years. This is according to an announcement from the Social Security Administration (SSA) on Wednesday.
“The 5.9% cost-of-living adjustment (COLA) will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2022,” SSA said in its announcement of the benefit increase. “Increased payments to approximately 8 million SSI beneficiaries will begin on December 30, 2021. (Note: some people receive both Social Security and SSI benefits). The Social Security Act ties the annual COLA to the increase in the Consumer Price Index [CPI] as determined by the Department of Labor’s Bureau of Labor Statistics.”
That connection between the annual COLA and the CPI has led to such a substantive hike to the benefit amount, according to reporting at the Wall Street Journal.
“Consumer prices have risen at the fastest rate in more than a decade this year because trillions of dollars in economic stimulus have supported consumer demand at a time when supplies for everything from toilet paper to new cars have been constrained because of pandemic disruptions,” the Journal reported with input from Naomi Fink, a retirement economist at Capital Group, an investment manager.
Still, there could be potential benefits for seniors’ additional benefits providing that current constraints in supply chains across the economic landscape do not persist for an extended period into the future, Fink told the Journal.
“If price rises turn out to be fleeting and reflect temporary supply shocks and they subsequently show much more modest rises in 2022, then that would be quite positive for those that got that windfall cost-of-living adjustment,” Fink said. “If in 2022 we see equal or even greater price rises and revisions to long-range inflation forecasts, it’s a different picture.”
Should price rises be temporary, that scenario could position Social Security recipients to boost their consumption habits,” Fink added.
The idea of added Social Security benefits being “undermined” by inflation was posited this past summer in a research brief published by the Boston College Center for Retirement Research (CRR). While recent indications of a notable rise in the program’s COLA will likely make a big difference for American retirees, the additional cash in seniors’ pockets from the bump is ultimately being undermined by other rising costs that threaten retirement stability, researchers said.
Most reverse mortgage originators seem to agree that the COLA makes for a welcome adjustment to their clients’ pocketbooks but may not have an abundance of effect in terms of their continuing need for the product, according to previous outreach conducted by RMD. Since Social Security can frequently be the only source of income for a segment of seniors, there are some concerns that borrowers could have to face beyond just incorporating the COLA into their benefits.