I did not see that coming.
Well, I knew that there was enough inflation washing around in the US economy that retirees would see an increase in there Social Security payments for 2022. I did not know it would be this big.
Social Security COLA Increase Is a Big One
If you’re new to collecting Social Security, or if you are just new to following along, Social Security offers a fixed monthly payment to US retirees based upon a combination of how many years they worked, what their salary was while working, and at what age they started taking Social Security benefits. Once this number is set, it is never recalculated. However, each year, all Social Security recipients get a Cost of Living Adjustment or COLA that ensures the benefit’s value stays steady with inflation, a mistake made with the minimum wage that they did not want to repeat.
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The COLA is calculated by the Social Security Administration based upon inflation statistics for the prior year. In the last few years, the COLA increases have been moderate, less than 2% in most cases.
This year, the calculation occurs as higher food and energy prices have driven inflation higher. The resulting COLA will be the largest in nearly 40 years. As a result most retirees will see an increase of 5.9% in their Social Security payments next year.
It is important to remember that COLA increase are not raises. Instead, they are designed to keep the purchasing power of the Social Security payment from declining. In other words, statistically speaking, a retiree buying the same things should see no change in how far their spending goes.
How To Maximize Social Security
I’m working on an article that shows how Social Security ends up fitting into most people’s retirement planning as they prepare to retire. Until then, remember that the later you take Social Security, the higher your monthly payment. Generally speaking, if you are in good health, able to make ends meet, and still working, it is worth deferring your benefits. If you are in poor health, unable to make ends meet, and have finished working, it’s probably best to start taking your benefits. The trick is that most people fall somewhere in between those two extremes.