1 in 5 Americans are Affected by Social Security’s Big Increase. Here’s How It Affects You
According to current estimates, 20% of Americans will receive more money to spend next year.
In the United States, nearly one-fifth of the population receives some form of Social Security benefit, whether as a retirement benefit, spousal benefit, or survivors benefit.
In 2022, Social Security beneficiaries will receive a 5.9% increase, which will be the largest increase for four decades.
The question remains, however, for millions of Americans who will receive a larger monthly payment how much will it improve the financial situation of these Americans?
Why Social Security Recipients Will Get More Money in 2022
Social Security benefits will increase to a bigger check for 1 in 5 Americans in 2022.
This is because the program is intended to compensate for rising costs of living whenever a certain consumer price index indicates an increase.
Specifically, this index, named the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), tracks yearly changes in price for a basket of goods and services. The basket encompasses:
- Food
- Housing
- Transportation
- Apparel
- Medical services
- Recreational expenses
- Education and communication services
Third-quarter CPI-W for a year– July, August, and September — will be compared to the previous year.
When it shows a rise in prices, benefits will increase by a proportionate amount the following year.
For most but not all years, Social Security beneficiaries have been given a raise as a result year in year out.
Compared to the CPI-W increases from the previous year, the increase in 2022 will be one of the largest in the last four decades.
Below is a chart that illustrates the rise in the CPI-W since 1984.
The image is courtesy of the Social Security Administration.
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Why the COLA won’t provide much assistance for Social Security recipients
Increasing Social Security payments won’t necessarily improve purchasing power.
Seniors will actually lose ground if inflation exceeds consumer price index data from the third quarter of 2021.
According to reports, prices increased by 6.2% in October 2021 when compared to October 2020, indicated that even if the increase is large, Social Security benefits won’t keep up with the rise in prices.
In addition, the CPI-W is not an accurate measure of how prices are changing for seniors.
This is mainly due to the fact that they tend to purchase goods and services whose prices rise more rapidly than overall inflation, and these are undercounted in a pricing index taken from the measures of urban wage earners and clerical workers’ spending habits.
The CPI-W tends to underestimate the effects of rising healthcare and housing costs, which together make up a significant portion of the typical retiree’s budget.
Social Security recipients who will receive the extra money will need to figure out how to spend it effectively in order to keep up with rising prices and in order to maintain their standard of living.
