etirees got some seemingly good news recently when the Social Security Administration announced that Social Security beneficiaries would be getting a 5.9% cost of living adjustment (COLA) in 2022. This is the largest raise in four decades, and it means that retirees will, in theory, end up with much more money.
The problem is, two pieces of really bad news followed, meaning most seniors won’t end up better off despite bigger checks. In fact, many will end up in a worse financial situation in terms of how far their money goes. Here’s why.
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1. Medicare premiums are going up 14.5%
Seniors typically rely on Medicare for their healthcare coverage. In fact, most retirees have Medicare premiums withdrawn directly from their Social Security checks. These premiums are charged for Medicare Part B, which is the part of Medicare that pays for routine care rather than hospitalizations.
Unfortunately, Medicare premiums will rise sharply in 2022. The standard monthly premium will jump from $148.50 in 2021 to $170.10 in 2022. This $21.60 increase is a 14.5% jump, and it will eat up a good portion of the Social Security raise retirees are receiving. The Medicare Part B deductible is also increasing by $30 next year, jumping from $203 in 2021 to $233 in 2022. That will leave seniors on the hook for even more costs.Sponsored LinksAmazon Has Millions of Prime Subscribers — But Few Know About This Savings TrickCapital One ShoppingRead More
With Medicare premiums eating up around a third of the average retiree’s cost of living adjustment, retirees will be left with far less money to cover the other added costs COLAs are supposed to help defray.
2. Reports are showing 6.2% inflation
Social Security’s COLA was based on a change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). COLAs are calculated by comparing the CPI-W for the months of July, August, and September to the CPI-W during the same months in the prior year. This comparison showed 5.9% inflation, which is why seniors are getting a 5.9% raise.
However, a more recent measure of inflation — a year-over-year comparison of the Consumer Price Index for All Urban Consumers (CPI-U) in October 2021 — showed that prices are actually up 6.2% from the prior year. With just a quick glance, it’s easy to see that a 5.9% raise isn’t going to do much to help seniors maintain their buying power if the price of goods and services has risen by 6.2% — especially if much of the extra money retirees get is eaten up by an increase in Medicare premiums.
Retirees are likely to face financial shortfalls next year, despite the big benefits increase, as their checks simply aren’t going to go far enough to cover the added medical costs and higher prices for food, heating, and transportation expenses. And their problems are likely to be exacerbated by the fact most seniors rely on their savings to supplement Social Security — and inflation eats away at the value of their savings accounts.
Ultimately, retirees may need to downsize their expectations in terms of their buying power in order to avoid serious budget shortfalls — despite getting the largest Social Security raise in decades. And it’s best to be prepared for that now rather than being caught off guard in 2022.
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