The Social Security Administration recently announced that Social Security beneficiaries would be getting a 5.9% cost of living adjustment in 2022. This is the largest raise in four decades, and it means that retirees will end up with more money.
The problem is that most seniors won't end up better off despite the bigger checks. Many will end up with a worse financial situation because of how far their money goes. Here's why.
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1. Medicare premiums are going up.
Seniors rely on Medicare for healthcare. Most retirees have Medicare premiums withdrawn from their Social Security checks. Medicare Part B pays for routine care rather than hospitalizations and these premiums are charged for it.
Medicare premiums will rise in 2022. The standard monthly premium will go up from 2021 to 2022. The increase will eat up a good portion of the Social Security raise retirees are receiving. The Medicare Part B deductible is going to increase by $30 next year. Seniors will be on the hook for more costs.
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.
The Consumer Price Index for Urban Wage Earners and Clerical Workers was used to calculate the Social Security's COLA. The calculation of the COLAs is done by comparing the months of July, August, and September to the same months in the prior year. The 5.9% inflation is why seniors are getting a raise.
The Consumer Price Index for All Urban Consumers (CPI-U) in October 2021, a year-over-year comparison, shows that prices are up 6.2% from the prior year. If the price of goods and services has risen by 6.2%, it's easy to see that a 5.9% raise isn't going to do much to help seniors maintain their buying power.
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. Their problems are likely to be worsened by the fact that most seniors rely on their savings to supplement Social Security, and that inflation eats away at the value of their savings accounts.
Retirees may need to downsize their expectations in order to avoid serious budget shortfalls despite getting the largest Social Security raise in decades. It's best to be prepared now rather than in the future.