WASHINGTON (SBG) — The Social Security Administration's Wednesday announcement that it was increasing benefits by 5.9% next year was a welcome relief for millions of fixed-income Americans who have been hard-hit by the last year of inflation. While providing a slight buffer to the nation's retirees, it also brought the program even closer to insolvency.
According to projections, the added cost of inflation could lead the Social Security Trust Fund to run out of money by 2032. That's one year earlier than previous estimates, explained Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget.
"The trajectory for Social Security was already an incredibly troubling one," she said. "When you have a big bump up like this that means that spending is going to be higher, not just this year, but all years going forward."
The 2022 increase in Social Security payouts marked the largest cost-of-living adjustment (COLA) since 1982. Following the Great Recession in 2009, retirees got a 5.8% bump. Low inflation in recent years has meant modest increases of less than 2% per year, on average, over the last decade.
Those negative effects could be offset if inflation translates to higher wages for workers paying into the program. Wages increased 4.6% over the last year, which is 0.8% slower than inflation. If wages don't increase, Social Security could be in trouble sooner than expected.
"Have a lot of challenges and a Congress that only seems to agree on doing nothing to reform and strengthen the program," MacGuineas said.
Social Security remains the single largest item in the federal budget. In the current fiscal year, the U.S. spent $1.135 trillion on the program, or roughly one-third of all mandatory spending. With payouts increasing and more Americans reaching retirement age, those costs will increase in the coming years.
In a statement Wednesday, AARP CEO Jo Ann Jenkins emphasized the importance of preserving the program for income security, adding that "policymakers should work together to ensure the long-term solvency and adequacy of Social Security and to protect the hard-earned benefits of millions of Americans and their families."
Retirees can expect to see larger checks starting in January. The average retired worker will see a $92 monthly increase from $1,565 last year to $1,657. Workers with disabilities will see a monthly increase from $1,282 to $1,358.
The adjustment was announced after the Bureau of Labor Statistics released new data showing the price of goods continuing to rise. The latest data showed consumer prices up 5.4% for the year, with the cost of groceries increasing by 4.5% and energy costs surging 25%, with significant price increases for gasoline, heating oil and utilities.
None of this bodes well for individuals on fixed incomes.
The Senior Citizens League, a nonpartisan advocacy group, has received hundreds of emails in the last month from older Americans facing dire situations, unable to pay bills as inflation eats up more of their limited income.
The organization estimates that Social Security benefits have lost nearly one-third of their buying power since 2000. "Even worse, it appears that inflation is not done with us yet, and the buying power of Social Security benefits may continue to erode into 2022," said Mary Johnson, a policy analyst for The Senior Citizens League.
Seniors will likely be most impacted by price spikes in food, housing, home heating and prescription drugs, all of which are projected to rise through next year. The Federal Reserve estimates overall inflation will remain above 2% through 2023.
According to a new government report, the cost to heat a home this winter could rise by 54% in some parts of the country. Households using natural gas can expect to pay $746 this winter, 30% more than last winter, while those relying on electricity will pay $1,268 on average.
At the same time, the Centers for Medicare and Medicaid recently announced subscribers would see a $10 monthly increase to their monthly Part B premiums, which covers outpatient doctors visits and medical supplies. The monthly premium will rise to $158.50, nearly 10% of average monthly Social Security benefits.
Social Security benefits remain the largest source of retirement income for most Americans and for 1 in 4 older Americans, it accounts for at least 90% of their total income.