A 5.9 percent cost-of-living adjustment (COLA) for Social Security recipients has been officially announced for 2022 by the Social Security Administration (SSA), the highest percentage increase in four decades.
From January 2022 onwards, approximately 64 million Social Security beneficiaries will experience this adjustment. Furthermore, the Supplemental Security Income (SSI) program will begin disbursing improved payments to more than 8 million recipients on December 31, 2021.
How Much Has Cola Increased In The Past Decade?
Given recent movements in the Consumer Price Index (CPI), many expected an increase of as much as 6.1%. However, the new 5.9% improvement is still significant.
With inflation at more than 5 percent, some fear the increase will be diluted by increasing consumer prices. Notwithstanding, Social Security beneficiaries will undoubtedly be pleased with the biggest adjustment in many years.
You Will Be Notified In This Way
Typically, beneficiaries of Social Security and Supplemental Security Income start receiving their new benefit amounts by mail in December according to the Social Security Administration.
The COLA notice can also be viewed online through your “My Social Security” account if you have an account set up with the SSA.
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Is Inflation A Factor That Affects Your Retirement Plans?
Any changes to your retirement income sources should always be discussed with your financial professional if you are surprised or concerned by this increase. People who are retired often realize that inflation has a detrimental effect on their retirement savings.
Many retirement accounts lose value and purchasing power as the cost of goods rises. Also, maintaining their living standards and savings can be a challenge for some retirees.
The good news is that retirees can adjust for inflation and help protect their retirement values in some ways. You can prepare for retirement by learning, below, how inflation affects it.
Is Inflation Calculated Yearly?
A measure of inflation is computed with the Consumer Price Index (CPI), which includes inflation for major sections before coming up with an inflation rate expressed in percentage terms.
Inflation in the U.S. averages around three percent. When understanding inflation across multiple markets, this percentage and the CPI percentage are helpful. It is also important to understand that these values represent a general approach, meaning the actual impact of inflation will vary from individual to individual.
An additional three percent could, for example, be withdrawn from a retiree’s savings every year to compensate for inflation. That isn’t the whole story, however. Rather than worrying about inflation in general, this retiree should consider how it may affect them specifically.
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Analyzing Individual Costs
Different people are affected by inflation in different ways. Someone who drives long distances would be affected more by the rising cost of gasoline than someone without a car.
In the same way, retiring brings a change of lifestyle that causes inflation to have a different impact on retirees.
The Consumer Price Index for the Elderly (CPI-E) shows inflation rates for households with individuals aged 62 and older, which is considered an accurate measure of this difference.
Even so, this is still a generalization, albeit for a specific population. A lifestyle evaluation and adjustment are the best ways to find out the cost of inflation.
Inflation Management
The increase in Social Security benefits will touch those already receiving it now in the coming year, as previously mentioned.
However, because the COLA is also based on the CPI-W, there may be some people who cannot rely on Social Security benefits to sufficiently compensate for all increases in costs. Following are some additional methods of reducing inflation while retiring.
Investing In A Way That Will Adjust To Inflation
It is possible to adjust certain investments to inflation. In retirement, you should always keep in mind that any investment involves risk.
If you are unsure whether your investment is worth it, consult your financial advisor.
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Changing Your Lifestyle
Think about the retirement goals you have in mind and your lifestyle in general. Could you possibly cut back on something to reduce inflation costs? You do not have to abandon your retirement goals for this.
With no relent, for more professional knowledge on how to protect your retirement savings, talk to your financial advisor about how inflation can impact you and you can get the best out of it.
