The pandemic dealt a significant blow on the American economy, grossly increasing the cost of living. The inflation rate has spiked considerably, hitting an all-time high of 6.2 percent in October 2021 instead of the 1.4 percent recorded at the beginning of the year. The Cost of Living Adjustment (COLA) as an initiative has been living up to its purpose by cushioning the effect of inflation on Social Security Income purchasing power. 

The cost of living is adjusted intermittently to accommodate various hiccups that the economy may face. So, it did not come as a surprise when the Social Security Administration announced its plans to adjust the US cost of living by January 2022 due to the rise in inflation. This adjustment will benefit Social Security claimants and ensure that what they receive does not reduce in value.

The Need for Adjustment of COLA

According to the US Bureau of Labor Statistics records, the state has a history of 0.9 percent growth in the Consumer Price Index (CPI) in October 2021. This increase is specifically for consumers dwelling in urban areas. The change in the Consumer Price Index from 0.4 percent recorded in September to 0.9 percent in October calls for an intervention in the form of COLA. 

Whenever inflation is on the rise, those severely hit are usually fixed income earners, and Social Security claimants fall into this category. A Social Security claimant receives, on average, a monthly benefit check of $1,437. With the inflation rate rising to 6.2 percent – the highest since November 1990, the benefit’s purchasing power has declined considerably, thereby necessitating an adjustment.

How Cost Of Living Adjustment (COLA) is Calculated

The Social Security Act spells out the formula for the calculation of COLA. This formula specifies the analysis of COLA using the increases recorded in the Consumer Price Index of Clerical Workers and Wage Earners in the urban areas (CPI-W). It is within the Bureau of Labor Statistics jurisdiction to calculate the monthly CPI-Ws.

Therefore, the COLA for July 2021 is equivalent to the recorded percentage growth in the average of the CPI-W for the second quarter of the current year in relation to the average recorded at the same period the previous year. Any percentage increase rounds up to a tenth of 1 percent. In a situation where there is zero increase, there will not be Cost Of Living Adjustment in the current year.

Benefits of the Projected 2022 COLA

What benefits will the projected 2022 COLA offer to fixed income earners and Social Security Beneficiaries?

• The proposed January 2022 Cost Of Living Adjustment will increase the social security monthly benefits from $1,437 to $1,657. This proposed increase will be to the advantage of the claimants.
• With the proposed Cost Of Living Adjustment, Social Security beneficiaries and others on a fixed income can afford to pay for goods and services. 
• COLA 2022 will help preserve the value of social security benefits against the rising inflation rate.

Final Thoughts

While the 2022 COLA seems to be relatively higher than usual, it is vital as the inflation rate increases. “If the Social Security Administration office does not take corresponding actions, the seniors may face the risk of falling into poverty. Many seniors who receive retirement benefits rely on these payments to help pay their living expenses,” says Attorney Sara Khaki of the Khaki Law Firm.