Since 1975, the Social Security Administration has adjusted Social Security Income (SSI)benefits to recipients, accounting for inflation. This inflation factor is often referred to as the Cost of Living Adjustment or COLA. The goal of COLA is to help retirees keep pace with the rising cost of food, energy and gas.
However, recent inflation adjustments to Social Security benefits have been minimal due to our low interest rate environment since the 2009 Great Recession. In fact, in 2009, 2010 and 2015, there were no Cost of Living Adjustments at all! In other years, the COLA factor was 2% or less.
This could change in the coming years as analysts anticipate higher inflation. In June of 2021, the Consumer Price Index rose 5.4% from a year earlier — the largest gain we’ve seen since 2008! The Senior Citizens League estimates that based on trends in 2021, we might see a Social Security COLA increase of 6.1% in 2022. That would equate to the largest one-year increase to SSI benefits since the high inflation days of 1983.For seniors on a set budget, the COLA increasecould come as a huge relief.
The COLA increase to Social Security will also be helpful as the Biden Administration is considering an increase to the corporate tax rate from the current 21% back up to 28%; therate used prior to the Trump Administration. While most on Capitol Hill believe the actual corporate tax rate will settle closer to 25%, the increased tax expense will likely be passed from corporations down to the American public through higher cost of goods on everything from food to household goods and appliances.
An increase to Social Security benefits might be the needed lifeline for seniors already strugglingas the cost of health care, food, and transportation steadily increase. A new bill in Congress, the Fair COLA for Seniors Act of 2021, proposes to change Social Security’s measure of inflation from CPI-W (the Consumer Price Index for Urban Wage Earners and Clerical Workers) to CPI-E (the Consumer Price Index for the Elderly). This shift has been endorsed by the Biden Administration and would also result in an upward adjustment to the existing CPI-W index increase calculation that we use today. The passage of this Bill, in addition to a higher COLA increase, will surely be welcomed by seniors.
The opinions expressed above are solely those of Kondo Wealth Advisors, Inc., (626-449-7783 info@kondowealthadvisors.com) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.
Sources:
https://www.ssa.gov/oact/cola/colaseries.html
https://www.cnbc.com/2021/07/14/social-security-cost-of-living-increase-for-2022-may-be-largest-in-decades.html
https://www.ssa.gov/policy/docs/ssb/v67n3/v67n3p73.html
Bob Veres Media, Insider Information