COLA Could Increase To About 10.8%

Every nation in the world is currently experiencing inflation due to the recent economic recessions brought on by the COVID-19 pandemic. The US is not left out and the impact it may have on the social security benefits will extend to the retirees including other social security beneficiaries. Here we will see about COLA could increase to about 10.8%

The cost-of-living adjustment (COLA) for social security benefits may increase to over 10.8% which could accrue to over a $1,500 increment in social security benefits by 2023. This is an estimate by economic experts who believe that the current inflation rate, which is by far the highest in over four decades, could increase to about 10.8% in 2023.

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However, since the inflation cuts across the board, will the increment in COLA on social security benefits improve the living situations or buying power of the nation’s senior citizens? Let us take a brief look.

COLA could increase to about 10.8%

COLA could increase to about 10.8%

How the cost-of-living adjustment is calculated?

  • COLA is calculated by averaging the inflation rate for the third quarter of the year. This is then compared to the inflation rate for the third quarter of the year before it. This calculation uses the Consumer Price Index of the consumers in the Urban areas. By doing so, the inflation rate for the next year is determined.

So far, the inflation rate for the first month of the third quarter of the year 2022, July, has been calculated and released to the public by the Social Security Administration. This rate is about 9.6% currently. This suggests that social security beneficiaries, especially the senior citizens, have to cover up somehow for the merger increment of 5.9% increment they saw in their COLA this year.

Cost-of-living adjustments on social security benefits take effect from the January of the following year. This implies that the current inflation rate notwithstanding, the senior citizens will not see any increment in their pay until January 2023.

How inflation rate impacts taxpayers and interest rates?

In a bid to reduce inflation, the government employs the use of increments in interest rates to increase its overall revenues. 

  • Interest rates also increase to potentially reduce demand for some goods and drive down their prices. With this, the government may be able to drive the prices of goods down and still fund the government. 
  • However, if the inflation rates do not reduce, there could be an impact on the taxpayers. As we all know, the taxes paid by the working population goes to pay the social security benefits of the senior citizens and others. With the rise in inflation, the Social Security trust funds, which are about $2.8 trillion now, will deplete. 
  • The SSA will thus have to increase COLA payments to social security beneficiaries. This suggests that the maximum income subject to social security tax payment will have to also shoot up from the $147,000 it is currently.
  • The 12.4% social security tax rate (for self-employed) and 6.2% for employers and employees will also have to increase if inflation rates persist. This is to ensure that the social security trust fund does not deplete beyond repair. Right now, the Social Security Administration has reported that its payouts far outweigh its revenue. This poses a problem for the near future.

Impact of Medicare on COLA increase

Since inflation would impact Medicare, it is safe to say that the COLA increase may not exactly be of impactful benefits to social security beneficiaries. This is because the Medicare charges are removed from their social security checks before they are paid. 

  • Anybody with underlying conditions which require high maintenance may thus lose a substantial chunk of their COLA increase to Medicare. That is to say, the effect of COLA increase will not exactly be felt by these senior citizens as it should.
  • Also, any outstanding debt from this period henceforth may not be paid except for those who have other sources of income apart from the social security benefit. Such sources will include pensions and or wages from extended services.
Conclusion

Since we only have the inflation rate for July for now, it is yet early to conclude that the inflation rate may increase beyond what it is currently. So, keep your fingers crossed and your hopes high. Things could take a good turn soon.

FAQs:
  1. When will the 2022 COLA be announced?

The COLA for every year is based on the inflation rate for the third quarter of the year – the months of July, September, and October. This goes to show that the COLA for 2022 will be announced in November and it will take effect in January 2023.

  1. Which social security benefits are affected by COLA?

Apart from the retirement social security which is for the senior citizens, social security for other groups like the injured, unemployed, those earning below minimum wage, etc., also benefit from COLA increments.

  1. Does COLA affect salaries?

The COLA affects salaries too because inflation increases the cost of living. This implies that the current salaries will not be enough for people anymore and thus needs to be adjusted as necessary.

COLA Could Increase To About 10.8%

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