With inflation negating the economic and humanitarian benefits brought on by the successive stimulus checks, especially the Economic Impact Payment under the American Rescue Plan Act, the federal administration has realized the need to adjust future relief payments for inflation.
Social Security Administration officials have revealed that seniors and other beneficiaries of the program will likely receive a cost-of-living adjustment that could be as high as 5% by the end of 2022 to offset the present inflation rate, the highest in 4 decades.
That increase is the highest COLA since 1981 in line with the rate of inflation that reached such a high in that year. At present, the monthly average Social Security stimulus check comes to about $1,658. At that level, beneficiaries will get an increase of $132.64 every month starting in 2023. The check could come to around $1,790.
The COLA adjustment is slated to take effect at the end of 2022 in December and the updated benefits will be paid out starting in January next year.
Second Rise Expected After 5.9% COLA Leap In January
Around 69M Americans who collect the Social Security check received a 5.9% increase in January, the biggest rise after 1982. But the unprecedented rise in the rate of inflation has meant that the previous rise was not sufficient to keep up with prices and eroded the purchasing power of seniors in the absence of any further federal stimulus checks.
The chief actuary of SSA, Stephen Goss said that the COLA increase could be closer to 8% than 3.8%. But the inflation report on June 10 indicated that the inflation rise was steeper at 8.6%, a 4-decade record, fuelled by the increase in the price of gas, fuel, housing, and utilities.
The latest inflation figures indicate that any future COLA bump will be around 8.6%, which has remained static from a prior May forecast according to the Senior Citizen League, an advocacy group for seniors.
Why is COLA Bigger Than Assumed Previously?
The Social Security Administration uses the CPI-W as the inflation index to set the living adjustment for the year. The initial projection by Goss of a COLA increase of 3.8% stems from the Trustees Report of 2022 which predicted that the program would enhance benefits by a more modest 3.8% by end-2022.
But the projections were before the spurt in inflation which jumped to a 40-year high and also before the war in Europe which together jacked up prices of food and fuel. The Trustees Report assumption was set in the middle of February 2022 before all these negative developments.
An 8% COLA could be good news for eligible beneficiaries and will give a relatively high increase in their benefits. The last time such a high bump was received by beneficiaries was way back in an 11.2% bump was given.
An Official Announcement Expected In October
While some economists believe that the rate of inflation will cool down after the third quarter in 2022 following a rise in Federal Reserve interest rates. But it could put a damp on business demands but appears inevitable at the moment. The COLA Stimulus Check adjustment rates are based on the Social Security inflation data for the previous 3 months and are announced in October. It indicates that the prediction of Goss could change from 8%.
A big increase in benefits has its negative side. A higher COLA could be set off against an increase in the premium of Medicare, which rises typically every year. In early 2022, the standard Medicare cost of Part B jumped 14.5% to $170.10, an increase of $20.60, as per data released by the Medicare and Medicaid Service. This increase led to the increase in COLA benefits being eaten up by Medicare services.
Movement Of Inflation Will Ultimately Decide On COLA Final Rate
Social Security Stimulus Check recipients saw an increase of 5.9% in the 2022 monthly checks, the highest in 4 decades, but a bigger COLA is not a guarantee for 2023. Only the CPI-W data from the 3rd quarter of the previous year will be compared with the data of this year by the Social Security Administration.
So a decrease in the rate of inflation could lead to a lower adjustment or even zero increase for 2023 or 2024.
But it all comes down to how quickly the Federal Reserve takes steps to dampen the runaway inflation rate through a rise in interest rates and other measures. The action taken by the Fed may cool down the inflation rate.
COLA Not Enough To Compensate Loss Of Buying Power For Seniors: Stimulus Check Becomes Vital
Even the record-high cost-of-living adjustment expected may fall short of halting the loss in people’s buying power, especially those who rely on the benefits that they have received over the years. This becomes even more vital in the absence of a stimulus check.
Over 40% of the buying power of Social Security benefits has gone since 2000. The hardest hit are people who have retired earlier as they have faced a cumulative effect while the COLA Stimulus Check has not been able to keep up.
The sharpest slide in purchasing power that was recorded occurred in March 2021 and again in March 2022 as there was a drop of 10 percentage points.
Case For A Stimulus Check For Seniors
The largest non-partisan advocacy group for seniors, the Senior Citizens League, petitioned in November 2021 for stimulus checks, an emergency $1,400 stimulus check to cope with the unprecedented situation.
The situation has gotten worse since. The League had argued that the COLA rise was insufficient for seniors who live on a fixed income and the surge experienced was too little to adjust for the real rate of inflation in the market.
There was a mere 1.3% rise in Social Security benefits in 2021, which came to a $20 increase in benefits. But 86% of respondent beneficiaries of Social Security say the increase in expenses was more than the amount increased by the SSA.
Around a quarter of low-income seniors report food insecurity and the matter has worsened in 2022 with an 8.5% inflation rate, the highest in 4 decades. The 5.9% rise in COLA in 2022, is the largest on record. But Medicare costs and the high inflation rate ate away at most of it.