What’s happening with Social Security?

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The US government on Thursday announced the biggest cost-of-living adjustment to Social Security benefits since the early ’80s—8.7%. The boost, which takes effect in January, comes as inflation has risen in the US to levels also not seen since the early ’80s.

The adjustment should add $144 to the average monthly benefits check, increasing it from $1,656 to $1,800, per Social Security Administration estimates. This is an annual raise, announced in the fall for the upcoming year, that was created to protect nearly 70 million Social Security recipients’ purchasing power. The timing of this particular announcement is great, as it came within hours of the Labor Department releasing fresh data showing that inflation is yet again climbing too fast. September’s consumer-price index rose 8.2% from a year ago, the agency said Thursday. Economists were predicting an increase more in the 8.1% range.

So the imminent boost in Social Security benefits is no doubt welcome news for qualifying retirees and disabled Americans—but thanks to unchecked inflation, it obviously won’t translate into $144 worth of disposable income. Everyday expenses unrelated to food and energy have jumped 0.6% since last September. Meals eaten out increased by 0.9%, while rent rose by 0.8%.

However, the Social Security Administration added that the increased benefits are being coupled with a 3% decrease in premiums for Medicare Part B—the portion of government health insurance that covers doctor visits and outpatient services. The cost-of-living adjustment won’t be affected by hikes in Medicare premiums, which is also somewhat of a first. “This year’s substantial Social Security cost-of-living adjustment is the first time in over a decade that Medicare premiums are not rising,” Social Security Administration Acting Commissioner Kilolo Kijakaz announced, arguing this combination “will give seniors more peace of mind and breathing cream.”

According to the government, 1 in 5 seniors currently relies on Social Security for at least 90% of their annual income. That amount will never increase thanks to a “raise,” but one place this arrangement works in recipients’ favor is during high inflation. Few groups in the US get automatic cost-of-living adjustments. Annual raises often depend less on workers’ costs year to year than on how well employers’ own finances are doing—and the answer isn’t always great when inflation is high.

The cost-of-living adjustment, or COLA, for Social Security is based on the inflation rate for last year’s third quarter, meaning the average consumer-price index during the previous July, August, and September. This increase is frankly negligible in most years. In other years—like 2021—retirees can get kind of hosed: This January’s 5.9% cost-of-living adjustment started out halfway decent, but didn’t cover inflation as it ballooned to 9% by June.

Luckily, 2022’s math is based on those same very awful summer numbers. Recipients will get what, for most, amounts to the highest adjustment in their lifetimes. It’s the largest increase that baby boomers (those born from 1945 to 1964) have seen since they began qualifying for benefits.

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