Substantially larger checks are coming soon, but it won't be enough for everyone.
By Noel Fletcher, MoneyWise
With inflation soaring, next year will see the biggest boost to Social Security since Ronald Reagan was president. For most seniors, it will be a raise unlike any they’ve ever seen.
The hike announced earlier this week was hailed as “crucial” by the AARP, which noted that Social Security is the largest source of income for most retirees. One in four seniors rely on it almost entirely.
But not everyone is satisfied by the increase, including advocates, legislators and hundreds of thousands of people pushing for a stimulus check to help seniors with rapidly rising prices.
Read on to learn what kind of raise you can expect next year — and what you can do if you need more help than that to stay out of debt.
Inflation saps seniors’ savings
The annual cost-of-living adjustment (COLA) is meant to maintain the buying power of seniors’ Social Security checks against inflation, but critics say that — due to shortcomings in how the adjustment is calculated — things haven’t worked out that way.
“Over the past 21 years, COLAs have raised Social Security benefits by 55%, but housing costs rose nearly 118% and health care costs rose 145% over the same period,” says Mary Johnson, Social Security and Medicare policy analyst for the nonprofit Senior Citizens League, in a statement.
She says consumer-price data shows Social Security benefits have lost nearly a third of their buying power since 2000.
The past year has been especially bad for inflation, as the pandemic continues to cause delays in the delivery of goods and shortages of essential materials.
Over the past few months, U.S. consumer prices have been up more than 5% versus last year — a level of inflation not seen since 2008. The increases at the gas pump have been truly eye-popping: In August, gasoline cost 42.7% more than a year ago, the government says.
Extra large COLA still falls flat
As big as it is, next year’s cost-of-living adjustment will struggle to keep pace with those kinds of price hikes.
Starting in January, some 64 million people will see their payments increase by 5.9%. That’s the highest annual increase since 1982, when the COLA climbed 7.4%.
What does that look like in practical terms? The average Social Security check for a single retiree will go from $1,565 per month to $1,657 — a raise of $92.
Retired couples who are both receiving benefits will see their average check go from $2,599 per month up to $2,753. That’s a $154 hike.
A raise that size should help Americans who are already able to pay the bills maintain their quality of life. However, it’s unlikely to make a life-changing difference for anyone who is already struggling.
Other efforts to provide relief underway
Last week, The Senior Citizens League sent a letter to nearly every member of the House and Senate, asking for a one-time $1,400 stimulus check. More than 38,200 people have signed a petition supporting the tax-free cash, which would help seniors who have fallen deep in debt over the past year catch up.
“While the 5.9% COLA will be very welcome, it won’t become effective until 2022 and Social Security recipients are facing large price increases right now,” Johnson says.
Meanwhile, the chairman of the House Social Security subcommittee is pushing for more systemic changes.
“It has been more than 50 years since Congress has improved Social Security benefits,” says Rep. John B. Larson (D-Conn) in a press release. “Congress has failed seniors and that needs to change.”
Following the COLA news, Larson announced he will introduce a bill next week called “Social Security 2100: A Sacred Trust.”
Details are not yet available, but Larson introduced a similarly named bill in 2019 that aimed to eliminate some taxes on Social Security benefits. It would have also set a new minimum benefit at 25% above the poverty line and link it to wage levels to ensure the payouts don’t fall behind.
Read more: Could This Be The Key to Increasing Retirement Savings?
What you can do to take care of yourself
While struggling seniors may be encouraged by these efforts, it would be wise not to bank on their success.
Larson’s original bill attracted more than 200 Democrat cosponsors but still failed to pass. And a petition calling for regular $2,000 checks for all Americans has drawn more than 2.9 million signatures but little, if any, attention from lawmakers.
So if an extra $92 a month won’t make a major difference in your life, take matters into your own hands and try to maximize your savings while minimizing your spending:
- Cut your housing costs with a refi. Interest rates are historically low right now; some 13.9 million homeowners could save an average of $293 a month with a refi, according to mortgage technology and data provider Black Knight.
- Consolidate your debt. Credit cards have helped many households get through the last year, but the expensive interest will only make life harder going forward. Folding your balances into a single debt consolidation loan can cut the cost of your debt and help you pay it off faster.
- Become a smarter online shopper. Deals are out there; the trouble is knowing where to look. An easy way to save time, trouble and money is to download a free browser extension that will automatically search for lower prices and coupons.
- Put your pennies to work. Even if you don't have much money to spare, you can still earn impressive returns in the stock market. A popular app can help you invest your "spare change" from everyday purchases.
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