The 2022 price of residing improve in Social Safety might be the most important in a long time

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The social security cost of living adjustment for 2022 could be 6.1% due to inflation, according to a new estimate.

That would be the biggest increase since 1983, according to the non-partisan advocacy group The Senior Citizens League, which calculated the number. It’s also an increase from last month’s estimate when the increase should be 5.3% for the next year.

The new estimate comes as the consumer price index rose 5.4% yoy in June, the largest increase since August 2008. Higher food and energy prices were one of the culprits in pushing inflation readings up.

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This has helped push the Social Security COLA estimate higher for 2022. This annual change is calculated based on the Consumer Price Index for Urban Wage earners and Office Workers (CPI-W).

Gasoline is particularly heavily weighted in the CPI-W, which helped push the COLA estimate up. Many seniors are also seeing higher prices in their grocery stores, according to Mary Johnson, Social Security and Medicare policy analyst for the Seniors League.

The COLA could change with three months of data to be reported before the Social Security Administration fixes the official number for the next year.

One thing that is unlikely during this time is Federal Reserve action. Central bank chairman Jerome Powell said Wednesday that the Fed is still a long way from changing its policy.

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The Social Security COLA for 2021 was 1.3%. For many retirees, that meant just $ 20 more a month. According to a study by the Senior Citizens League, the increases over the years have resulted in a loss of purchasing power for seniors.

A bill was re-introduced in Congress last week to change the way the annual COLA is calculated to better reflect the cost that seniors pay.

The Fair COLA for Seniors Act of 2021, proposed by Rep. John Garamendi, D-California, calls for a change in the level of the consumer price index for the elderly, or the CPI-E used in place of the current CPI-W.

The CPI-E may better reflect the expenses seniors face because it is based on elements that people age 62 and older typically use, including a higher weight on health care costs, according to Richard Johnson, director of Urban Retirement Policy Institutes.

Annual cost of living adjustments increased an average of 2.9% from 1982 to 2011 based on current methods. The CPI-E, on the other hand, rose by an average of 3.1% over this period in accordance with the proposed legislation.

The co-sponsors for Garamendi’s bill are mostly Democrats. In contrast, in the past Republicans have suggested moving to what is known as the chained CPI, which measures how people adjust their spending when prices rise.

A switch to the CPI-E would lead to an additional increase of around 0.2 percentage points per year compared to the current index, according to Johnson from the Urban Institute. “That has a big impact over time,” he says.

It is estimated that after 25 years, adjustments to the cost of living based on the CPI-E would increase benefits by 5%.

However, today’s retirees may not see much of a difference as it takes years to accumulate, Johnson said. But the change still makes sense, he said.

“The whole point of making these cost of living adjustments is so that social security spending power doesn’t erode over time,” said Johnson. “If we don’t use the right inflation regulator, performance can erode.”

However, while changing the COLA calculation is an “obvious type of change we should make,” Johnson said, one thing stands in the way: cost.

“This would worsen the trust funds’ already precarious financial condition,” said Johnson. “It seems like this type of change could be part of a larger social security reform.”

President Joe Biden’s election campaign plans for Social Security included moving to the CPI-E. A bill previously proposed in Congress, the Social Security 2100 Act, also includes this change.

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