G&S PERSPECTIVES

Social Security │ COLA Increase Announced for 2022

The Social Security Administration recently announced the highest increase in Cost-of-Living Adjustment since the 1980s

Social Security recipients should anticipate a substantial increase to the Cost-of-Living Adjustment (COLA). Based on the Consumer Price Index from the third quarter of 2020, Social Security and Supplemental Security Income beneficiaries can expect a 5.9 percent increase for 2022.

The increase is the highest Social Security COLA adjustment since the 1980s, furthering the speculation that recent inflation is the culprit. Rising prices in 2021 are impacting retirees who received a 1.3 percent increase in January of 2021. Social security only rises annually, while inflation appears to be growing monthly. The Labor Department reported that its broader measure of inflation, the Consumer Price Index rose 5.4 percent in September from the previous year, making it the most significant annual gain since 2008.

With the increase to COLA, the Social Security Administration also increased the maximum earnings subject to Social Security Tax to $147,000 in 2022, up from $142,800 in 2021, a 2.9% increase. Bringing to light the balance that wage increases play in regards to the rise of Social Security taxes, Anqui Chen, the assistant director of savings research at Boston College’s Center for Retirement research stated,

“If wages are not increasing at the same rate as inflation in a given year, then what’s going in is going to be increasing less than what’s going out in benefits. That’s when you get the mismatch.”

Ultimately, Social Security benefits did not anticipate or keep up with 2021’s inflation. Federal Reserve Chairman Jerome Powell and other Fed officials state that they expect elevated inflation to be temporary and the associated economic frictions will recede as the economy’s pandemic reopening phase fades. However, it will be difficult to pinpoint when there will be any cooling in inflation to occur.

What’s Next? While there are rising fears, this increase will not support rising consumer prices currently being witnessed; it remains to be seen when we might witness the cooling of inflation. Social Security and its beneficiaries should anticipate being notified of this adjustment by mail in early December, providing their new benefit amount. If this increase is surprising or concerning to you, we suggest consulting with one of our financial advisors to review and update your financial plan if needed.

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