Social Security Benefits To Get Biggest Increase in 40 Years
In October, the Social Security Administration announced that the nearly 70 million Americans collecting benefits will get a 5.9% bump in 2022, the highest inflation adjustment in 40 years. This will be the highest cost of living adjustment that nearly every recipient has ever seen. The increase will be effective starting in January and will increase the average monthly benefit by approximately $95/month. While this increase is welcome, the fact of the matter is that historically, these Cost of Living Adjustments (COLAs) have not kept pace with some of the fastest growing costs of older households such as housing and healthcare.
Nearly every time we talk about Social Security, we are asked about its long-term solvency. Will Social Security go bust? Will it be there when I am ready to retire? Back in late August, the Social Security and Medicare Trustees released their annual report on the long-term financial state of the programs. The report said that the Social Security Trust Fund is expected to be depleted in 2033, one year earlier than previous projections. The projected date of depletion has been in the 2035 range for the past decade, so this adjustment is nothing new. The immediate cause of the reduced timeline is of course related to the slowdown in economic activity due to the pandemic.
The Social Security Trust Fund collects payments out of the wages of millions of American workers and when those workers are laid off or otherwise unable to collect paychecks, the trust fund is unable to collect its share of those paychecks. In its annual report, the Social Security Administration (SSA) projects that employment and wages will gradually rise to full recovery by 2023, but that the level of worker productivity and Gross Domestic Product (GDP) will be permanently lowered by 1%. That permanent decline is not a consensus view from economists and should be viewed with caution. In addition, the report estimates that there will be a higher mortality rate for people aged 15 and older through 2023. Meaning once again, fewer workers collecting paychecks. But the COVID-19 mortality rates are much lower for working individuals and much higher for those actually collecting Social Security benefits. There is also no provision in the report accounting for the death of more than 200,000 Americans who were collecting Social Security checks.