With a couple of months of inflation data yet to be seen, it looks like those collecting Social Security are in store for a significant increase in 2022. The most recent Consumer Price Index (CPI) announcement for the month of June revealed a 5.4% annual rate, and the Senior Citizens League estimates the final number announced in October could be closer to 6.1%. This would be the largest upward adjustment in benefits since 1983.

This of course is welcome news, especially for retirees that rely heavily on Social Security and may be struggling with the higher cost of groceries, gas, and healthcare among other goods and services. The Social Security Administration reports that 20% of married couples and 40% of singles receive at least 90% of their income come social security alone, so this is a significant announcement for many.

There could be an even larger adjustment upwards if a recent bill introduced were passed, which changes how cost-of-living adjustments (COLA) are calculated. The bill, called “Fair COLA for Seniors Act of 2021”, would take into account that the rise of inflation for the elderly is actually higher than the current calculation of inflation for wage earners. This bill would specifically look at areas where seniors spend a larger portion of their income, like healthcare.

How does this translate into actual dollars if the increase is 6.1%? For those fortunate enough to collect the maximum benefit of $3,895, that would mean an additional $237.60 per month, or $2,851.14 per year. For the average American who is collecting $1,543 however, the increase would be just under $100 per month.

The news isn’t all good, as unfortunately the new benefits will not be reflected in the monthly payouts until January of 2022. That means that for several more months retires will need to endure the higher costs of living without the increase in income. From a financial planning perspective, this may be a good time to keep a larger cash cushion from investments or other income generating vehicles you may have. It is also important to remember that while this may seem like a pay raise for many, this does not raise the true value of your social security income. That’s because in theory, if the adjustments are calculated correctly, you will be spending the extra money on same goods and services anyways. It ends up being a wash when you do the math.

While the government may protect your social security income from inflation, you can use a similar theory when protecting your investments. Investing in commodities has traditionally been a great way to participate in rising prices on everything from natural gas, lumber, beef, or orange juice. Precious metals such as gold have historically performed well as a hedge against inflation, certainly as part of a diversified portfolio. Treasury inflation-protected securities (TIPS) were created by the U.S. government to explicitly protect investors against inflation and offer a guaranteed way to participate with rising prices. Other investments to consider would include real estate and just equities in general.

When it comes to retirement income planning, Social Security is an important stream of income for millions of Americans. We will find out in a few short months just how much of an increase to expect next year. Just remember, the additional income you may be receiving does not mean you will necessarily have excess cash to spend on other things, so plan accordingly.


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