Heightened inflation has caused financial pain for seniors who saw a modest increase in Social Security benefits in 2021, but relief is likely on the way thanks to those very same rising consumer prices.
Researchers at Bank of America Global Securities explained in a note to clients on Wednesday that while seniors who are dependent on Social Security benefits may be getting "squeezed" by rising prices now, their budgetary situation should improve next year thanks to inflation’s impact on the annual Cost of Living Adjustment (COLA).
Cost of living adjustments, which began in 1975, are implemented in order to counteract the effects of inflation.
The Social Security Administration uses a formula to determine what the COLA will be each year. It is based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, which are calculated on a monthly basis by the Bureau of Labor Statistics. Benefits will increase if there is a measurable increase in the index year over year.
Bank of America researchers expect inflation to hit 5.5% this year, whereas the cost of living increase was just 1.3%.
But higher inflation explains why The Senior Citizens League estimated this month that recipients could see the largest benefit bump since 1983.
Bank of America researchers estimate that benefits will increase by about 5.8%.
By their measure, the average Social Security recipient received a $20 per month benefit increase in 2021, but should see an $80 per month increase in 2022.
Meanwhile, they expect inflation next year to fall by about 2.3% next year.
That swing in the opposite direction for recipients is one of the reasons the firm’s researchers expect the recovery will remain strong into 2022.
"Seniors and the disabled will be doing their share in keeping the economy hot," researchers concluded.
The Senior Citizens League projected an even higher benefit bump – of 6.1% – in 2022.
Seniors, however, will have to wait until the new benefit amounts kick in next year to see higher checks.