A rise in the Social Security COLA usually spells a rise in the Part B premium. The offset to a Social Security COLA increase is the increase in the Medicare Part B premium for those age 65 and older who are covered by Medicare, as such an increase in this monthly premium (currently $148.50 for most) will result in a dollar-for-dollar reduction in the real COLA increase.įor example, a $94 per month Social Security benefit increase along with a, say, $10 per month increase in the Medicare Part B premium would result in a “real” Social Security benefit increase of $84 per month. There has been in the past, and is currently, federal legislation (HR 4315) proposed for Social Security to adopt the CPI-E in calculating each year’s COLA. Over the period of study, the BLS has determined the average annual inflation adjustment would be increased by about 0.2% using the CPI-E weighting system. But an offset to this increased cost considered in the CPI-E is the ability of the retired household to use substitutes for certain consumables that those who are working cannot use. The major adjustment to the existing CPI-W index is the out-of-pocket costs for medical services, to include insurance premiums, copays and deductibles. To address this difference, for the past 30 years or so, the Bureau of Labor Statistics (BLS) has studied an alternative Index, the CPI-E, in which consumption habits of those age 62 and older are used. As the name implies, the CPI-W index is based on the consumption habits of workers, not retirees. How is the annual COLA determined? Well, the inflation index used by Social Security is the CPI-W which is officially referred to as the Consumer Price Index for Urban Wage Earners and Clerical Workers. Now, to be sure, the Senior Citizen’s League’s predicted 2022 COLA is only an estimate based on monthly COLA increases up through June and there are other estimates that are less than this estimate, but the Senior Citizen’s League has a strong reputation in Social Security COLA predictions. That’s an increase of over 3 ½ times the past 10-year average! So with the average individual Social Security Benefit of $1,543/month for 2021, this retirement benefit will increase by about $94/month or an annual increase of about $1,1. To give you an idea of how significant this expected increase is, the average annual Social Security COLA over the past 10 years has been 1.7%. This sharp increase over last year’s 1.3% COLA will be due primarily to the unexpected jump in the costs of housing, food, transportation (gasoline), apparel and a range of services. If the COLA is increased by this amount, it will be the largest annual adjustment since 1983. The non-partisan Senior Citizen’s League, who each year predicts the annual cost of living adjustment (COLA) for Social Security benefits, recently increased its expected 2022 COLA from 4.7% to 6.1%.
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