Another significant increase in Social Security benefits may be on the way next year, according to one retirement expert, if inflation doesn’t cool down.
“There's a possibility we would actually see another fairly big COLA adjustment next year,” Boston College Research Fellow Matt Rutledge recently told Yahoo Finance Live (video above).
The Social Security Administration announced that there will be a cost of living adjustment increase of 5.9% in 2022, marking the largest increase in almost 40 years. Rutledge noted that the increase was calculated off of inflation from October 2020 to October 2021, and that November’s year-over-year inflation reading came in even higher at 6.8%, which could mean another big increase next year.
“It really depends,” he said, “on so much of what's going on and so many of the things we've been looking at in terms of whether this inflation is going to be transitory or not, are the ports still going to be backed up, are we still going to be seeing labor shortages?"
“The good news, I think, is Social Security beneficiaries are going to be protected against most inflation that they would face,” Rutledge added.
What remains uncertain is how much future beneficiaries will get from Social Security if the current surplus in the trust fund that pays out benefits runs out in 2034 as estimated. At that point, the fund could cover only 78% of full benefits.
“That's going to devastate a lot of household portfolios for the people that are relying on that Social Security benefit,” Rutledge said.
About half of seniors depend on Social Security for 50% of their total income. Rutledge noted that shows how crucial the program is to retirees.
“Social Security is essential to protect,” he said, pointing out that future retirees will need to lean more on other income sources like employee-sponsored 401(k)s, their own savings, and home equity. “Basically, you need an all-of-the-above approach.”
What surprises Rutledge is that there is little political discussion of Social Security’s future even though seniors are a large, and reliable, voting bloc.
“We haven't heard a peep through any of the last few election cycles,” said Rutledge, noting that politicians could take restorative actions like taxing more higher earners and extending the retirement age past 67 to shore up Social Security. “It’s almost like there is bipartisan support, but it's bipartisan support for avoiding the issue entirely.”
Ella is the personal finance reporter for Yahoo Finance. Follow her on Twitter @bookgirlchicago.
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