Continued inflationary pressure means retirees could receive the biggest cost-of-living increase in Social Security benefits in nearly four decades starting next January.
The Bureau of Labor Statistics reported that the consumer price index leaped 0.9% in June from the previous month and was up 5.4% over the past 12 months. The June increase was the largest year-over-year increase since 2008.
Based on the June CPI data, Mary Johnson, Social Security analyst for the Senior Citizen League, projects Social Security benefits could increase 6.1% in 2022, nearly five times the 1.3% COLA increase in January 2021. If current inflationary trends continue through September, the result could be the largest annual cost-of-living increase in Social Security benefits since 1983.
“Today’s robust inflation data surprised in its strength and price increases which will likely persist in the short term,” said Rick Rieder, chief investment officer for BlackRock’s Global Field Income Investment Team. “Much of today’s inflation is due to reopening factors and supply constraints, but as supply chains normalize from Covid-related shocks and inventories are rebuilt, we expect much of the recent inflation will be more transitory, with some longer-term stickiness in pricing pressure.”
The official COLA for 2022 will be announced in October. It is based on the increase in the average CPI for the third quarter of 2021 over the previous year’s third quarter.
Johnson said she was flabbergasted by the huge jump in June CPI.
“This is the highest COLA estimate that I have ever made in 26-plus years of researching the COLA,” she said.
“While retired and disabled beneficiaries are looking forward to an inflation boost, after years of very flat COLAS, we are hearing stories that many are having trouble,” Johnson added. “Some whose retirement savings were negatively impacted in 2020 have had to dig deeper into those savings because of the significant increase in costs this year.”
If next year’s COLA turns out to be the largest since 1983, that would be quite a coincidence, since 1983 was the last time that Congress approved major Social Security reform legislation. Those changes included a gradual increase in the full retirement age from 65 to 67; the imposition of income taxes on Social Security benefits for the first time; and the creation of the Social Security trust funds to hold excess tax revenues designed to help pay benefits when payroll taxes alone were no longer sufficient.
Those trust funds continued to grow for about 25 years before Social Security began tapping them in 2010 to augment benefits as the first wave of baby boomers started retiring in the wake of the Great Recession. The trust funds are expected to be exhausted within the next 15 years unless Congress acts before then to address the long-term solvency of Social Security. The critical retirement, disability and survivor benefits program paid out over $1 trillion in benefits to about 65 million Americans last year.
Social Security watchers are anxiously awaiting the latest Social Security trustees’ report for an indication of how the economic fallout of the pandemic has affected the trust funds. The last report, released in April 2020, forecast the trust fund would run dry in 2035. At that point Social Security would be able to pay only 79% of projected benefits unless Congress acts before then. But last year’s report did not take the pandemic into account. There has been no indication when the 2021 trustees report will be released.
President Biden campaigned on strengthening Social Security, increasing benefits for vulnerable populations, including boosting minimum benefits for the poor and extremely old, offering credits for caregivers, and increasing payroll taxes on those earning $400,000 or more to help pay for those expansions in benefits. But any future Social Security reform will require bipartisan action — something that’s in short supply following the president’s firing of Social Security Administration Commissioner Andrew Saul last week.
Saul, a Trump-era appointee, was scheduled to serve his six-year term through 2025. But the administration relied on a recent Supreme Court decision to fire the agency head at will and seek a replacement to fulfill the president’s agenda.
“Since taking office, Commissioner Saul has undermined and politicized Social Security disability benefits,” a White House official said this week. The official listed a litany of grievances including terminating the agency’s telework policy used by up to 25% of the agency’s workforce, not repairing SSA’s relationships with relevant federal employee unions, including in the context of COVID-19 workplace safety planning, and reducing due process protections for benefits appeals hearings.
Congressional Democrats cheered Saul’s firing as long overdue, but Republicans charged the administration with playing politics. As a result, prospects for bipartisan agreement on crucial Social Security reform any time soon just got a little dimmer.
(Questions about Social Security rules? Find the answers in Mary Beth Franklin’s 2021 ebook at MaximizingSocialSecurityBenefits.com.)
Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.