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Social Security payments are expected to rise by more than 10% next January given the soaring inflation that we have experienced. Mary Johnson, policy analyst at The Senior Citizens League, cautions that this number may be too high, particularly if inflation cools later in the year. The best case scenario : A huge increase in January while inflation cools to a reasonable level in 2023.
U.S. consumer inflation hit 9.1% last month, a rate that we have not seen in more than four decades. There’s good news and bad news here. Seniors will get the biggest increase in Social Security than they have seen in decades. And if you own your own home, you will be in a better financial situation than those who are renting because, as long as you have a fixed-rate mortgage, your payments won’t go up. The biggest cost increase right now is gas, up 11.2% from the previous month and up 60% from a year ago. This is followed by groceries, which are up 12.2% from a year ago. Let’s hope that the Federal Reserve can get this economy back on track.
Many people make the mistake of taking Social Security as soon as possible rather than their normal retirement age. This can have a huge negative financial impact if you live a long life. If you are in good health, most financial planners tell you to wait until you are 70 years old in order to maximize your benefits. The Wall Street Journal regularly writes a report on various financial questions, one of the latest from a 64 year-old who was planning on waiting until she turned 68 before filing for Social Security. However, she is thinking of taking it now because the huge cost-of-living (COLA) increase which will likely come next January. Glenn Reffenach of the Journal wrote, “Not to worry. Actually you already are qualifying for these adjustments. The Social Security Administration on its website spells out how a person’s benefits are calculated and how COLAs, in specific, fit into that calculation. Here’s the wording:
You are eligible for cost-of-living benefit increases starting with the year you turn age 62. This is true even if you don’t get benefits until your full retirement age or age 70.”
In essence, your Social Security benefit is recalculated each year even if you haven’t filed for benefits yet.
Inflation in the U.S. hit a 40 year high of 7.9%, which is causing financial problems for many seniors. Economists say that this is forcing many retirees back into the workforce. Thankfully, this may ease staffing shortages which has hit a number of industries. “We’re beginning to see the migration of the older cohort who expected to live on fixed income in a low interest-rate and low-inflation environment, Joseph Brusuelas, chief economist at RSM US LLP, told The Wall Street Journal. “Really what you’re dealing with is an inflationary shock that has elicited a change in behavior,” he said. The share of people over 55 either working or looking for a job rose to 38.9% in March from 38.4% in October. That translates to more than 480K people in that age group entering the labor force during the last six months.
Seniors were happy to get a big increase of 5.9% to their Social Security payments this year, but it may not have been enough. It was announced by the Bureau of Labor Statistics today that The Consumer Price Index rose 7.5% year-over-year in January. That came in well above the median forecast of 7.3% from economists surveyed by Bloomberg. It is the strongest consumer price growth since 1982!
According to a Pew Research poll, roughly half of Americans younger than age 50 believe they won’t receive any Social Security benefits. However, that’s unlikely to be the case. It’s true, we haven’t had a surplus in the Social Security Trust Fund since 2010 and if nothing is done in the next couple of decades there would have to be cuts in Social Security benefits. The current date for that is 2034. However, this would be a big political fiasco for anyone in office at the time, so politicians are likely to act well before that happens. Hopefully they will raise payroll taxes. However, another option they have is to keeping raising the year in which you retire.
Many seniors have been elated to read in the paper that their Cost of Living Adjustment (COLA) in their Social Security Payments is likely to rise more than 6% come January. However, before you get too excited, news just broke that inflation in the U.S. hit a 31 year high in October at 6.2%. “It increasingly appears that the COLA for 2022 will be the highest paid since 1983 when it was 7.4%,” Mary Johnson, Social Security policy analyst for the Senior Citizens League, told AARP Bulletin (October, 2021 P4). The increase in 22021 was only 1.3% and over the past 10 years it has increased by 1.7%. Let’s hope inflation rates decline next year!
A House bill sponsored by Democrats called Social Security 2100 : A Sacred Trust does much to help seniors, boosting benefits in a number of areas. Introduced by Rep. John Carson, D-Conn. who serves on the House Ways and Means Social Security Subcommittee is a bit perplexing as it is adding to a looming deficit and does nothing to address how our nation will pay for it. Some key issues in the bill:
Benefits would be set at 125% above the poverty line and tied to current wage levels;
Both new and existing beneficiaries would get a 2% increase in their benefit, on average;
The bill would repeal rules that reduce Social Security benefits for workers and their spouses, widows or widowers who also have pension income (called the Windfall Elimination Provision and Government Pension Offset); and
Annual cost-of-living adjustments would be tied to the Consumer Price Index for the Elderly, or CPI-E.
The latest estimates from the government are that by 2034, Social Security benefits will drop to 78% of what has been promised, and this new bill extends that date to 2038 to give Congress more time to come up with a long-term solution to the program’s solvency issues. There is a provision for an increase in the wages cap where workers have to pay Social Security Tax (up from $147,000 to $400,000). However, this will likely be offset from a provision in the bill which would only require Social Security recipients to pay taxes on earnings above $35,000 ($50,000 for couples), up significantly from $25K and $32K respectively. This seems to me like Congress just kicking the can down the road—why not try and solve this issue now?
There was good news and bad news in the release from the Social Security Administration. Recipients of Social Security will see a 5.9% boost in their payments starting next January. On average, this will mean a $92 boost to $1,657/month, although payments can vary widely based on your lifetime earnings. That’s the largest increase since 1982. The bad news : inflation, which is what is driving the cost of living increase, is rising sharply.
https://www.wsj.com/articles/social-security-cola-increase-2022-11634067648?mod=djem10point
Trustees for the Social Security trust fund have revised their forecasts, and although the pandemic weighed heavily on the system, it was not as bad as originally thought. The program is forecasted to be out of funds by 2034, just one year sooner than they had forecast in their April 2020 report. Unless Congress shores up the fund, benefits will be automatically reduced starting in 2034. Also weighing heavily on Social Security is the fact that inflation has increased, pushing up the cost of living increase which will further deplete funds. “There is an incredible amount of uncertainty,” one senior administration official said. “We haven’t lived through a pandemic like this in over 100 years, so we don’t know what the effects are.”