Since COLA can be a confusing topic, let’s explore this in more detail, including what COLA is, how it affects Social Security and what your check could look like next year.
What is a Cost of Living Adjustment?
The purpose of COLA is to increase Social Security and Supplemental Security Income (SSI) to counteract the effects of inflation. COLAs are typically equal to the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
Broadly speaking, COLAs protect against inflation. The costs of goods and services continue to rise - some years more than others. If the average Social Security check stays consistent, it eventually won’t be enough to cover things like rent, food or medical care.
Automatic COLAs began in 1975. Due to these changes, inflation stopped draining Social Security benefits. If there is no increase, there can be no COLA. To date, there has been an increase in benefits every year except 2009, 2010 and 2015.
The COLA for 2022 is 5.9 percent, meaning that someone who received $10,000 in Social Security benefits in 2021 will receive $10,590 in 2022. Even with a cost of living adjustment, Americans may still have to find ways to make more money or cut their expenses to survive this high inflationary period.
What Would Next Year’s Social Security Checks Look Like?
The Social Security Administration determines its COLA for the next year based on average annual increases in the CPI-W. The average retired person in the U.S. receives a Social Security check of $1,656 a month, which means an 8.7 percent COLA will increase the check by $144.10.
To calculate your specific increase, you can take your gross benefit amount and multiply it by 0.087. While it might not be as much as you had hoped for, it will help counteract some of the effects of inflation. In June, inflation in the U.S. hit a 40-year high, with consumer prices increasing to over 9 percent!
Even though inflation is coming back down, the cost of food, rent and medical care continues to go up. Therefore, the average Social Security check has fallen short. COLAs for Social Security will help bring these checks up so that they account for inflation. Final determinations will be made in October.
Plan for 2023 with Leonard Financial Solutions
Leonard Financial Solutions can help you make the most of your savings and retirement. We offer free consultations and educational seminars, as we want to see our clients maximize their hard work and benefits. Contact us today to learn more about your Social Security benefits for 2022 and 2023.