There is bad news about the big social security hike of 2022 | Personal finance

(Christy Bieber)

If you collect Social Security benefits, you may have been delighted to hear about the huge cost of living adjustment (COLA) coming in 2022. For the first time since 2008, retirees are getting a raise exceeding 5%. To be exact, benefit recipients will see their monthly payment increase by 5.9% at the start of the year. This is the biggest increase since 1981.

Before you get too excited, however, there are three big reasons why a big benefit increase could actually be bad news for retirees. Let’s see what they are.

Image source: Getty Images.

1. The boost may not be enough to keep pace with inflation

The Social Security cost of living adjustment aims to keep retirees’ purchasing power stable as costs increase over time. Prices do not stay fixed, so if benefits did not increase as well, seniors could buy less and less using the funds they receive each year.

The reason beneficiaries get a big increase in 2022 is because inflation has been high this year. The problem is, even with a COLA of 5.9%, this may not be enough to maintain the purchasing power that beneficiaries had with their benefits in the past.

Food, shelter, heat and prescription drugs are all expected to see substantial price increases in 2022. And while it would be nice to think that the increase seniors get will cover these additional expenses, the reality is. that the consumer price index used to determine the COLA for each year is not based on the spending habits of the elderly. Instead, it is based on the spending habits of urban wage earners and office workers. The result is that it often underestimates the percentage of income that seniors spend on goods and services, especially in areas that are expected to experience some of the biggest price increases.

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