Social Security’s Big COLA Increase . . . Bahhh Humbug!

A very smalls hopping cart on a table with a man typing into a calculator in the background

Have you ever seen an advertisement for something that sounded so good, you had to wonder if it’s just too good to be true? Maybe it’s that vacation website that’s selling a week in a beach-front condo for $250. Or it’s that incredibly cheap airfare ticket. I’m talking about things that seem like a great deal, until you read the fine print. Maybe that beach-front condo is actually not on the beach, it’s just facing it – from 2 blocks away, and has no inside plumbing. Or the airline ticket that almost doubles in price once you pay to choose your seat, check a bag and cover all of the taxes and airline fees. 

We’ve all had to evaluate things that, on the surface, seem like a great deal. It’s only once we get all the details that we often realize it’s not such a great deal after all. This is by and large how many folks are reacting to the recent announcement that Social Security is giving a huge cost of living adjustment (COLA) to retirees in 2022. For the first time since 2008, roughly 70 million Americans who rely on Social Security are getting an increase of more than 5%. They’ll actually see a 5.9% boost in their monthly benefit starting in January, the largest increase since 1981. For the average Social Security benefits check of $1,565, this translates to an additional $92 a month.

So, I was meeting with a client of ours this past week, a widower I’ll call “Gene” and we got to talking about his own pending benefit increase. While Gene has saved for decades coupled with a well-built retirement system, the extra money is still appreciated. And as much as I hated to do it, I had to fill him in on the details to help him put the increase in perspective. So this week, with our time together, I’d like to share with you the upcoming COLA, and why it’s not the boon it appears to be.

Now, naturally COVID has affected the finances for many, including the federal government. Trillions of dollars in economic stimulus spending have occurred to prop up consumer demand during the pandemic. And unfortunately, when personal finances got tight and supply chains for goods bottlenecked, it caused surging prices. Now, if these increased prices are able to level back out next year, the boost to Social Security benefits could prove significant to seniors. However, if inflation continues its pace in 2022, analysts are warning it’s “a different picture.”

Folks, here’s the bad news – many experts believe inflation will certainly stretch into 2022 before getting better, and it’s likely that most seniors will also have to absorb an increase to their Medicare Part B premiums of around the same amount—6% or so—which equals about $10 more per month. 

Many of these same experts are unimpressed by Social Security’s biggest boost in a generation. They argue that since 2000, beneficiaries have lost a third of their buying, citing stats that show the Social Security Administration’s cost-of-living adjustment has grown only half as fast as seniors’ actual costs. Their argument naturally boils down to a bigger fight: that the CPI-W index is a terrible reflection of retirees’ true spending habits. They claim younger urban workers buy more gas, electronics, and stuff online. Seniors spend a disproportionate chunk of their income on items that saw the worst price hikes during the pandemic, like food and medicine₁.

It’s quite likely that the boost may not be enough to keep pace with inflation. Even with a 5.9% COLA, it may not actually be enough to maintain the buying power recipients had with their benefits in the past. Food, housing, heating, and prescription drugs are all expected to see substantial price increases in 2022. And while it would be nice to think the raise seniors are getting will cover these added expenses, the reality is that the consumer pricing index used to determine each year’s COLA isn’t based on the spending habits of seniors. Instead, it’s based on the spending habits of urban wage earners and clerical workers. The result is that it often underestimates how high a percentage of income seniors spend on goods and services, especially in areas that are expected to see some of the sharpest price increases.

This means that despite the fact that retirees will get more money in their checks, it will likely end up buying less. And next year’s increase can’t make up for the past few decades where retirees’ buying power declined. Past COLA increases have simply been way too small to allow many seniors to continue to afford the same standard of living. In fact, an analysis by the Senior Citizens League revealed there’s been a 30% decline in the buying power of Social Security benefits since 2000₂. 

To pile on, the inflation that’s causing this sizeable COLA increase could also affect retirees’ savings in other ways. While COLAs are applied to Social Security checks, most retirees don’t live off these benefits alone. They use other sources to supplement their retirement income, which means those sources would also need to increase substantially to help cover the higher cost of living. For many, their investment accounts may not produce large enough returns to help offset the impact of inflation, leading them to potentially taking on too much risk to allow them to sleep well at night.  

So, while a 5.9% increase sounds pretty impressive, you need to understand the “fine print” – that is, that the conditions that caused this increase are actually a source of some bad news. Before you spend that extra $92 (or so), make sure you’ve taken a good hard look at your retirement system to ensure preservation of capital measures are in place, and look for ways to help cut expenses or generate reliable income from supplemental sources, too. 

And as always – be vigilant and stay alert, because you deserve more!

Have a great week.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA. Insurance offered through its affiliate, CutterInsure, Inc. We do not offer tax or legal advice. Jeff can be reached at

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