Manage your money - we can help.

Unpacking the 2022 COLA increase – Coming to a pocket book near you . . .

We’re going in for a deeper dive about the recent 5.9% COLA increase for Social Security and it’s impacts. With the countless articles recently on this topic, I favor one published in the Associated Press (APnews.com) titled as ‘Explainer: Why the Social Security COLA is jumping next year; a nicely comprehensive view authored by Ricardo Alonzo-Zaldivar, who is a healthcare reporter, mentions how Social Security has averaged 1.7% annually since about 2011, yet with the current horizon of inflation an offset was needed to “preserve the purchasing power of Social Security benefits – meaning that Seniors and retirees are not getting a raise” . . . they’re simply keeping their heads above the watermark.

For a little mechanics here, COLA’s or Cost-of-Living Adjustments actually began in 1975 and are based on the Consumer Price Index for wage earners and clerical workers. By law it is the Department of Labor’s data that predicates the COLA calculation set by Social Security. If there’s no increase in the Consumer Price Index, the same holds true for COLA.
COLA increases are not guaranteed – in fact, there were none in 2010, 2011 and 2016.

So, WHY then does all of this matter, whether you’re retired or not . . . yet? It’s a bit bewildering to consider a 5.9% COLA increase, the largest since 2009 as it comes on the heels of the Trustee’s Report officially saying due to among other things, especially COVID the ability for Social Security to pay full benefits is now even less . . .
Again, I cite the focus article “For the first time in 39 years, the cost of delivering benefits will exceed Social Security’s total income from payroll tax collections and interest. From here on in, Social Security will have to tap its savings to pay full (or 100%) benefits. The report also moved up the exhaustion date for Social Security’s massive trust fund by one year, to 2034. At that point, the program will be able to pay only 78% of scheduled benefits”

Even more perplexing? There are and have been almost one hundred fifty proposals to resolve the agency’s shortfall. (Can someone just pick one?) And the nominees are:
Cost of Living Adjustment – a moot issue now as it has just been increased to 5.9%
Increases: Tax on payroll, investment income, estate and gift tax; increased taxation on Social Security Benefits (started in 1984)
Decreases: Monthly individual and family benefits

Did you know the Social Security has Investment Transactions? There have been marketable securities in the past, however today these refer to special issues like short term certificates and long term bonds.

Last, certainly not least on the list is the increasing Retirement Age, that is already happening and is actually a decrease in the opportunity for future delayed retirement credits. The Full Retirement Age has moved from age 65 to age 67 for those born in 1960 and after. Inevitably, the current 8% annual increase for delayed retirement credits (if benefits are claimed later at age 70 after Full Retirement Age) won’t be available if, the trend continues.

This is a faucet that Congress can’t turn off – nearly 70 million people receive some type of SSA benefit.

What options do we have? If you haven’t already, you can monitor your earnings history online with ‘my Social Security’ account at https://www.ssa.gov/myaccount/. Next, plan by considering claiming options according to your circumstances – Suncoast Social Security Advisors provides a confidential and comprehensive analysis with related tax implications. Don’t leave your options to chance.

[1] EXPLAINER: Why the Social Security COLA is jumping next year (apnews.com)

Share this post