For Seniors ages 65 and older, Social Security benefits account for about 90% of monthly income for about 50 percent of beneficiaries. As a result, the annual Social Security raises, which is called the Cost-of-Living Adjustment (COLA) is an important part of the budgeting process for many seniors. In this post, we will highlight 5 Facts about Social Security COLA Increase and what you should know about future COLA increases.
We also highlight the COLA for 2021, the projections for 2022 increase, and the history of COLA for the last 10 years.
Here are 5 Facts about Social Security COLA Increase you may not know about:
COLA is calculated based on the wage earners’ consumer price index.
Each year, the Social Security Administration (SSA) calculates the percent change between average prices in the third quarter of the current year with the third quarter of the previous year to determine the COLA.
The reason the fourth quarter isn’t used is that that number is typically not available from the U.S. Bureau of Labor Statistics until mid-January.
However, since the COLA is effective January 1st, it is not possible to use the fourth-quarter data.
Over the last decade or so, the Social Security COLA has been relatively small. The increase for 2021 is just 1.3 percent.
The table below shows the COLA since 2011.
|Year||COLA increase||Year||COLA increase|
Social Security benefits are much more modest than many people realize.
For 2021, the maximum Social Security benefit is just $3,011, per month, at full retirement age.
Those who wait to claim benefits at age 70 could receive $3,895 per month.
However, the average Social Security retirement benefit in 2021 was about $1,543 a month, or about $18,516 a year.
Also, the average disabled worker and aged widow received even lesser amounts.
If you worked all of your adult life at average earnings and retires at age 65 in 2020, Social Security benefits will replace about 40 percent of your past earnings.
This “replacement rate” will slip to about 35 percent for a medium earner retiring at 65 in the future.
This is mainly because the full retirement age, which has already risen to 66 and is gradually climbing to 67 by 2022.
The maximum monthly Social Security benefit amount is the most you could receive from Social Security.
How much you will get depends on a few factors, including:
Over time your benefits will increase if the COLA indicates an increase.
The maximum monthly benefit for 2021 by retirement age is listed below:
However, these figures assume a worker had steady earnings at the maximum taxable level since age 22.
The table below shows the full retirement age by the year you were born and how much your benefits will be reduced depending on when you start collecting benefits.
|Year of birth||Full retirement age||Months between age 62 and full retirement age||At age 62 a $1,000 retirement benefit would be reduced to||The retirement benefit is reduced by:|
|1955||66 and 2 months||50||$741||25.83%|
|1956||66 and 4 months||52||$733||26.67%|
|1957||66 and 6 months||54||$725||27.50%|
|1958||66 and 8 months||56||$716||28.33%|
|1959||66 and 10 months||58||$708||29.17%|
|1960 and later||67||60||$700||30.00%|
It is expected that for 2022, seniors could get a significant increase in their benefits from COLA.
In September 2021, Kiplinger forecasted that the annual COLA for Social Security benefits for 2022 would be 6%.
This will be the biggest jump since 1982 when benefits rose 7.4%.
We will update this post once the COLA for 2022 is announced.
We hope this post on 5 Facts about Social Security COLA Increase is helpful.
To see 12 Important Facts about Social Security you should know about, click here: 12 Social Security Facts You Should Know.
For help calculating how much you will get in Social Security benefits, click here: Social Security Retirement Benefits Calculator.
To change your name on your Social Security card due to Marriage or Divorce, click here: Social Security Name Change Process.
For help on how to change your address with Social Security, click here: How to Change Your Address with Social Security.
If you need help replacing a lost Social Security Card, click here: Social Security Card Replacement Help.
If you have further questions about Social Security or Disability benefits, please let us know in the comments section below.
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