Your 2022 Social Security raise might surprise you — prep for the good and the bad
If you collect Social Security, the monthly deposit to your account is about to grow by the largest amount you’ve probably seen since you started receiving payouts.
Starting with the January 2022 payment, 64 million Social Security recipients will receive the biggest annual benefit bump since 1982.
At first glance, this is exciting news. But upon closer inspection, the increase is actually quite concerning. It looks like older Americans may have to resort to other creative money-saving strategies. Here’s what you can expect if you’re retired or still working.
Inflation’s impact: How much is the 2022 COLA?
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What price increases have you noticed lately? Maybe to your grocery receipt, your heating bill or your medical expenses. Are you paying more for your home in recent years?
Rising inflation is unnerving many Americans, but these higher living expenses make people who depend on Social Security squirm as they try to stetch their monthly payments.
Advocates for older Americans say the raises over the years — even the bigger boost in 2022 — fail to keep up with rising costs, especially ballooning expenses that eat up most of older people’s budgets, including housing and health care.
The COLA for 2022 is 5.9%, the Social Security Administration recently announced, significantly higher than average annual increases of about 2.2% during the previous 20 years. The average Social Security benefit will increase to $1,657 per month, up by $92 from 2021.
But the Senior Citizens League says the amount may not even make up for price increases the government predicts for next year: 2.5% to 5% for food, up to 25% for natural gas heating this winter, and 5% for Medicare prescription coverage.
“It appears that inflation is not done with us yet, and the buying power of Social Security benefits may continue to erode into 2022,” says Mary Johnson, a policy analyst with the organization.
And Medicare Part B premiums for doctors visits, lab tests and other services are set to increase about $22 a month, or 14.5%, the biggest jump in the insurance program’s history.
If your Social Security isn’t enough to live on
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You can’t control inflation or the cost-of-living adjustment, but you can take measures to protect yourself if the buying power of your retirement income fades.
If you haven’t retired, focus on multiplying your nest egg:
Save more aggressively. Max out your employer-matching 401(k). Did you know that 17 million Americans miss out on free money they’re owed from their employers?
If you’re healthy, wait until you turn 70 to claim your Social Security benefits.
If you’re under 40, pretend Social Security doesn’t exist. There’s no guaranteeing how long it will last.
If you’re retired, you could make a dent in any shortage left by an inadequate COLA:
Rework your budget. Don’t assume that the Social Security increase will be enough to keep spending the way you do now.
Consider picking up a part-time job if you’re able. Many desirable jobs are open with today’s labor shortage. If health conditions limit your options, freelancing from home could boost your income.
Speaking of home, consider downsizing or relocating. Pile the proceeds from a house sale into your retirement fund. If you rent, downsizing shaves one of your biggest expenses.
If you live in a state that taxes Social Security benefits, you could move to a more tax-friendly location.
Win the battle against inflation
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The 2022 Social Security COLA won’t cut it for many Americans, but several methods can fortify your finances at any point in life:
Attack your debt. Credit cards acted as a lifeline for many people during the pandemic, but holding high-interest debts weighs you down. Consolidating your balances into a single loan can help you pay off what you owe faster.
Refinance your home. If you’re still paying a mortgage, it’s a good time to refinance to cut your monthly payment. Mortgage rates are hovering near modern lows, and the shorter-term interest rates — about 2.4% for 15-year loans, for example — are especially enticing for people who want to clear that debt for retirement.
Save when you shop. Stop overpaying for online purchases. Several handy browser extensions hunt for lower prices and automatically apply promo codes during checkout.
Lower-risk investments also may help tamp down the impact of rising costs:
Investigate an investment in farming. Buying part of a farmland parcel is a way some investors hedge against inflation. After all, the population is growing, and people always need food. New platforms help investors tap into this often-overlooked asset.
Put your nickels and dimes to work. Whatever stage of life you’re in, you can try to earn money from the stock market by thinking small. A popular app lets you build a diversified portfolio when you invest your “spare change” from day-to-day purchases.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.