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In October, the Social Security Administration (SSA) announced a 5.9% cost-of-living adjustment (COLA) for Social Security benefits, the biggest increase since 1982.
This raise will kick in for 62 million Americans who receive Social Security benefits in January 2022. Americans who receive SSI benefits will see theirs increase a little earlier, starting on Dec. 30, 2021.
But how much is the new monthly benefit for the average American? And will the bigger payments combat the effects of inflation on household goods and health care?
How Much Are My 2022 Social Security Payments?
The 2021 average monthly benefit for all retired workers was $1,565. A 5.9% increase will raise the average benefit to about $1,657, which is about $100 a month. For disabled workers who receive Social Security benefits, they can expect an average increase of $76 per month.
The average 2021 monthly benefit for SSI is $794 per month and is expected to increase to $841 for 2022, an increase of $47. About 3 million Americans who receive both Social Security and SSI benefits will also benefit from these changes.
SSA will notify those who receive Social Security benefits and SSI about their new benefit amounts by mail and online (through their my Social Security account) starting in December.
How COLA Increases Evolved Over Time
Each year, the SSA announces any increases to Social Security benefits, known as COLA, to help recipients keep up with rising prices. The increases are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is the official measure of the monthly price change in goods and services. Annually, the SSA compares the CPI-W for the third quarter of the previous year and current year to determine the COLA increase.
While COLA adjustments are now automatic, this was not always the case. Beneficiaries received their first COLA adjustment in October 1950. A second increase was made in September 1952 through legislation. For the next 20 years, recipients only saw their benefits increase if Congress approved it.
In 1972, Congress passed legislation to provide automatic linked increases to a rise in consumer prices. Recipients would no longer have to wait for Congress to take action to receive an increase. The first automatic increases to Social Security benefits took effect in 1975. After 1982, COLA adjustments were effective for December of each year and received by beneficiaries in January.
Here is a history of COLA increases from 1975 to 2021:
|Social Security Cost-Of-Living Adjustments|
The Rise in Prices Is the Major Driver for Social Security Payment Increases
During the pandemic, demand for food, cars, gasoline and other goods rose. And as the country started opening up, businesses had a hard time keeping up with the increased demand. This created a rise in prices, causing inflation to jump to 5.3%, which is the largest increase since Aug. 2008. The rise in inflation is the major driver for increases in Social Security payments.
The current average gas price is $3.42 per gallon, according to the American Automobile Association (AAA). Food prices have also risen over the past year. In 2021, food purchases, including groceries, increased 2.1 percent. The cost of food away from home (restaurants) increased by 3.3 percent compared to 2020, according to the US Department of Agriculture (USDA).
Since the first automatic increase, beneficiaries have received increases almost every year, but there have been three years (2009, 2010, and 2015) where recipients did not receive COLA adjustments at all. In these years, the CPI-W did not increase, and in some instances, there could be a decrease in inflation. However, even if this happens, Social Security benefits are never decreased.
Wage Earners Will Pay More In Social Security Taxes
The increased Social Security benefits have to be paid by someone: American workers.
The SSA increases to the wage base, which is the maximum amount an employee pays in Social Security taxes. The maximum amount of an employee’s wages subject to SS taxes has risen from $142,800 in 2021 to $147,000 for 2022, an increase of 2.9%.
An employee pays 6.2% in Social Security taxes on earnings up to the maximum amount, whereas an employer pays an equivalent 6.2%, for a total of 12.4% of Social Security taxes paid.
The same limits apply to the self-employed, only they’re responsible for both shares of the tax.