Seniors on Social Security have been waiting months to learn what the cost-of-living increase, or COLA, for 2022 would be. Because that figure is based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a COLA couldn’t be calculated until September inflation data became available.
The Social Security Administration revealed this week that seniors will receive a 5.9% COLA in 2022. That’s a significant increase than the 1.3 percent they were given for 2021. Is that the case? For seniors, a large COLA may appear to be a fantastic thing. However, it is not the big windfall that Social Security claimants may believe it to be.
The purpose of COLAs is to help seniors maintain their buying power in the face of inflation. If seniors were to start out collecting a single benefit and keep getting that same benefit over the course of 20 or 30 years, they’d eventually be unable to keep up with their living costs.
Inflation has been rampant this summer, driving up the cost of food, gas, and just about everything else, which is why the COLA for 2022 is so huge. While a large raise may be beneficial to seniors, it is likely to be quickly absorbed by higher living expenditures. In fact, even with a high COLA, it’s unclear that seniors will be able to come out ahead in 2022, given the current state of consumer prices.
Seniors seek additional income
All of this adds up to one very significant lesson that future Social Security recipients should remember. It’s fine to rely on Social Security for a portion of your retirement income, but it’s not a good idea to retire only on Social Security.
For the ordinary worker, Social Security will replace roughly 40% of their pre-retirement earnings. However, most seniors require approximately double that amount of money to live comfortably.
Furthermore, rising healthcare costs have rendered Social Security ineffective in assisting elderly in meeting their financial obligations. As a result, today’s workers should take steps to prepare for retirement on their own and become less reliant on Social Security after their working years are over.
There are various alternatives available in this area, with IRAs and 401(k) plans being an excellent place to start. These retirement savings plans are widely available and don’t have income limits (with the exception of Roth IRAs), and they come with a slew of tax advantages that investors can take advantage of now and in the future.
Workers with high-deductible health insurance plans, on the other hand, can use health savings accounts, or HSAs. These accounts allow employees to make pre-tax contributions to cover immediate or long-term medical expenses. Unused funds can be invested and carried forward indefinitely, providing seniors with a dedicated cash source for medical expenses during retirement.
Most retirees overlook the $17,166 Social Security bonus
If you’re like most Americans, you’re behind on your retirement savings by a few years (or more). However, a few little-known “Social Security secrets” may be able to help you increase your retirement income. For instance, one simple method may get you an extra $17,166 every year! We believe that once you understand how to optimize your Social Security benefits, you will be able to retire with confidence and the peace of mind that we all seek.