Retirees received good news recently when the Social Security Administration announced that Social Security beneficiaries will receive a 5.9% cost of living adjustment (COLA) in 2022. This is the most sharp increase in four decades, and that means retirees, in theory, are left with a lot more money.
Problem is, two really bad news followed, which means most seniors won’t fare any better despite bigger checks. In fact, many of them will find themselves in an even worse financial situation when it comes to the use of their money. Here’s why.
1. Health insurance premiums increase by 14.5%
Seniors generally rely on Medicare for their medical coverage. In fact, most retirees have health insurance premiums withdrawn directly from their Social Security checks. These premiums are billed for Medicare Part B, which is the part of Medicare that pays for routine care rather than hospital admissions.
Unfortunately, health insurance premiums will rise sharply in 2022. The standard monthly premium will drop from $ 148.50 in 2021 to $ 170.10 in 2022. This increase of $ 21.60 represents a jump of 14.5%, and it will absorb much of the increase in social security that retirees receive. . The Medicare Part B deductible will also increase by $ 30 next year, from $ 203 in 2021 to $ 233 in 2022. This will leave seniors with even higher costs.
With health insurance premiums absorbing about a third of the average retiree’s cost-of-living adjustment, retirees will have much less money to cover the other additional costs that COLAs are supposed to help defray.
2. Reports show inflation of 6.2%
The social security COLA was based on a modification of the consumer price index for urban and office workers (CPI-W). COLAs are calculated by comparing the CPI-W for the months of July, August and September to the CPI-W for the same months of the previous year. This comparison showed an inflation of 5.9%, which is why the elderly get an increase of 5.9%.
However, a more recent measure of inflation – a year-over-year comparison of the Consumer Price Index for all urban consumers (CPI-U) in October 2021 – showed that prices are Actually up 6.2% from the previous year. At a glance, it’s easy to see that a 5.9% increase won’t do much to help seniors maintain their purchasing power if the price of goods and services has gone up. by 6.2%, especially if much of the extra money retirees are eaten away by increased health insurance premiums.
Retirees are likely to face financial hardship next year, despite the large benefit increase, as their checks simply won’t go far enough to cover the additional medical costs. and higher prices for food, heat and transportation costs. And their problems are likely to be exacerbated by the fact that most older people rely on their savings to supplement Social Security – and inflation is eating away at the value of their savings accounts.
Ultimately, retirees may have to lower their purchasing power expectations in order to avoid serious budget deficits, despite the largest increase in social security in decades. And it’s better to prepare for it now than to be caught off guard in 2022.