Retirees, disabled people and others will receive a Social Security cost-of-living adjustment of 5.9% in 2022. That's the biggest increase in about 40 years. To put it into perspective, last year the COLA adjustment was 1.3%.
For the average retiree who got a monthly check of $1,565 this year, the bump means an additional $92 per month in 2022, raising the typical payment to $1,657. That means that the average beneficiary could take home an additional $1,104 next year.
"This will have an important impact for beneficiaries," says Winnie Sun, co-founder and managing director of Sun Group Wealth Partners. "This can keep people in homes, provide for utilities, food, and more."
The increase in benefits comes as inflation has reached the highest rate in more than 10 years. The Consumer Price Index, which tracks the cost of a mix of common expenditures like food, housing, and energy, has risen by 5.4% so far this year, according to data released Wednesday by the Bureau of Labor Statistics.
That's a big jump if you look at the historical pace of inflation. From 1913 to 2021, the long-term annual average inflation was around 3%, according Inflationdata.com.
"The guaranteed benefits provided by Social Security and the COLA increase are more crucial than ever as millions of Americans continue to face the health and economic impacts of the pandemic," Jo Ann Jenkins, CEO of AARP, said in a statement Wednesday. "Social Security is the largest source of retirement income for most Americans and provides nearly all income (90% or more) for one in four seniors."
More than 64 million Social Security beneficiaries should see the increase kick in starting in January. About 8 million Supplemental Security Income beneficiaries can expect to receive a boost starting on December 30.
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"The pandemic has created havoc on a lot of daily, weekly, monthly budgets, and this will help many who rely on this money," says Sun.
In a typical year, COLA increases by between 1% and 2%. During the Great Recession in 2009, benefits rose by 5.8% for 50 million people, which at the time was the largest increase in more than a century.
Social Security is funded by a payroll tax of 12.4% on eligible wages, with half paid by the employee and half by the employer, unless the worker is self-employed, in which case they'd pay the entire 12.4%. In 2022, the maximum amount of wage earnings subject to the Social Security tax will increase to $147,000 from $142,800 in 2021, the Social Security Administration also announced Wednesday.
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