If you're on Social Security, you can expect your checks to increase by 5.9% in January. That's the biggest cost-of-living adjustment recipients have seen since 1982. Here's what that will look like for the average recipient:
- Retired workers will get an extra $92 a month on average, bringing the average monthly benefit to $1,657.
- Disabled workers will get an extra $76 a month on average, bringing the average monthly benefit to $1,358.
- The maximum Supplemental Security Income (SSI) benefit for individuals will increase by $47 a month, bringing the maximum monthly benefit to $841.
A 5.9% COLA sounds pretty generous, considering that Social Security benefits increased by just 1.3% in 2021. But as prices for everything from groceries to housing skyrocket, will an extra $92 a month really be enough for the average retiree?
Why a 5.9% COLA Isn't Great News
If you receive Social Security benefits, you may find that an extra $92 a month doesn't stretch very far. Soaring inflation is the reason checks will be higher, and it's likely to continue into 2022. Social Security COLAs have historically lagged behind inflation, which is why the average benefit buys about one-third less than it did in 2000.
Also, premiums for Medicare Part B, which cover doctor's visits and outpatient care and are usually deducted from Social Security benefits, are expected to go up by $10 next year. That means an average retiree on Social Security would only see an extra $82 in their monthly checks.
According to The Senior Citizens League, the following spending categories will continue to put pressure on senior budgets in 2022:
- Food: Although cost increases at the grocery store are starting to slow down, the USDA estimates that grocery prices are expected to rise by 1.5% to 2.5% in 2022, compared to a typical 1% to 2% annual increase. Restaurant prices will likely go up by 3% to 4%.
- Rent: Rent for senior housing typically goes up by about 5% per year, but The Senior Citizens League is seeing increases of 7% and higher for 2022.
- Owner housing: As home values continue to surge, real estate taxes and homeowner insurance prices will rise as well. Also, mortgage rates are expected to increase in 2022, while costs of building and materials remain high.
- Home heating and natural gas: Costs for home heating oil and natural gas are projected to rise by 21% to 25% this winter.
- Prescription prices: Medicare estimates that prescription drug plan prices will increase by nearly 5% in 2022, while the out-of-pocket minimum needed for Part D catastrophic coverage will rise 7.6% to $7,050 in 2022.
What if Your Social Security COLA Isn't Enough?
There are no easy fixes if your Social Security check won't go far enough, even with a 5.9% COLA. If you're struggling to pay for food, getting assistance from a food pantry or an organization like Meals on Wheels may be an option. If you have an emergency expense, like you're facing eviction or an energy bill you can't afford, try calling United Way's 211 hotline, which can connect you with local resources.
The 5.9% increase in benefits will certainly help seniors dealing with soaring costs. But it's essential to be realistic about how far it will actually go in your retirement budget. Unfortunately, the average Social Security recipient will see most, if not all, of their pay raise eaten up by rising living costs.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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