Inflation is on everyone’s mind these days, and for most of the investment community higher inflation is not welcomed! But there is a group that might just benefit a little from a bit of inflation. I am specifically referring to Social Security recipients. Every October the Social Security Administration announces the COLA for the next year. Unfortunately, COLA increases have been running at 1.92% for the last four years, bringing with them annual increases of roughly $20/month to $39/month for a recipient who gets the “average” monthly payout. Clearly not enough to be life changing.
We’ve reported on these developments in the past, and have discussed using the CPI-E instead of the standard CPI-U, as the CPI-E measures the inflationary impact on senior citizens. The CPI-E has run about 0.2% higher than the CPI-U since it was first reported. That change has not been adopted yet. The Bureau of Labor Statistics recently released the inflation number for May, which showed a 0.6% increase following April’s 0.8% surge.
“In May, The Senior Citizens League (TSCL) released its first forecast of the 2022 COLA after analyzing the April CPI data and had it pegged at 4.7%.”(401(K)Specialist) Given May’s continuing inflationary upward trend, it is not inconceivable that the forecast for 2022’s COLA could rise further. If the COLA ends up being anywhere near the 4.7% increase or greater, it will represent a >3Xs increase on 2021’s 1.3% allocation. Again, the annual COLA is intended to help recipients stay one step ahead of inflation but given the use of the CPI-U instead of the CPI-E, our seniors may still be falling behind.