According to the latest Consumer Price Index (CPI) statistics, the cost-of-living adjustment (COLA) for next year might be much higher than the projected figures released a month ago. The Consumer Price Index has climbed 5% in the 12-month period ending in May. This is the highest 12-month gain since a 5.4% increase in August 2008.
Rising Consumer Costs & COLAs
The Bureau of Labor Statistics (BLS) further reports that the all-items index has been showing a positive trend. It has been moving higher every month since January when the 12-month change was recorded as -1.4%.
The CPI All Urban Consumers (CPI-U) rose 0.6% on a seasonally adjusted basis in May, following a 0.8% increase in April. In addition, after gaining 0.9% in April, the index for all products, except energy and food, climbed 0.7% in May.
The CPI for urban wage earners and clerical workers, more commonly known as CPI-W, is used to calculate the Social Security COLA. Over the previous year, it increased by 5.6%. Prior to seasonal adjustment, the index climbed 0.9 percent in May alone.
What Is the Cost of Living Adjustment For 2022?
Wondering what the cost of living adjustment will be for 2022? According to estimates provided by The Senior Citizens League (TSCL) in early May, Social Security beneficiaries may get a 4.7% COLA in 2022. If approved, this will be the biggest increase since 2009.
However, the Social Security COLAs for Supplemental Security Income (SSI) and Social Security grew by 1.3% in 2021, 1.6% in 2020, and 2.8% in 2019. With such strong inflation, the projections might alter multiple times before the 2022 COLA is announced in October 2021.
Regardless, the Social Security Administration (SSA) publishes the annual COLA for the year in October, which serves as an early indicator of future COLAs on employee benefit services and retirement plan contributions. The Social Security COLA is currently determined by the change in CPI-W. It depends on household expenditures that are included in the CPI-W definition and must meet the following requirements:
- Clerical or wage jobs must account for more than half of the household income revenue.
- At least one of the earners in the household must have been in employment for a minimum of 37 weeks in the last 12 months.
According to TSCL, the CPI-W market basket is attributed to younger working individuals and overlooks households with retired folks, which is one of the reasons why Social Security COLAs have been so low in the past. In other words, the CPI-W provides more weight to consumer products that are frequently purchased by younger individuals, while housing and medical expenditures are given less weight.
How does an increase in the COLAs affect your retirement plan?
Windes Employee Benefit Services Team can help you make this determination. Connect with us to learn more.