2022 Cost of Living Adjustment (COLA) Increases Significantly Leading to Record Social Security and SSI Benefits Raise – Latest Update and Final Numbers

The following article provides a discussion and update on the Cost of Living Adjustment (COLA) over the last few years. The COLA figure is critical for millions of Americas, especially retirees whose social security and SSI benefit raise is tied to the COLA increase. So the larger the COLA increase the larger the increase in benefits for social security recipients.

COLA Calculation and Final Increase

The COLA increase is based on the percentage increase (if any) in the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of the current year over the average for the third quarter of the previous year in which a COLA became effective.

The government, via the BLS and SSA, publishes the official annual cost-of-living adjustments typically in late October, with changes to social security, retiree benefits and medicare effective for the subsequent year.

2022 COLA Increase (5.9%)

social security COLA increase - 2022 vs 2021
COLA Increase

With inflation (CPI) running much higher than in past years, seniors and retirees will see a nice boost to their social security benefits check in 2022. The SSA estimates that the average Social Security and Supplemental Security Income (SSI) monthly benefit will rise to $1,657 – which reflects a $92 increase.

Forecasters and publications had predictions ranging from a 4.3% to 6.2% COLA increase in 2022. The final number was nearer the top end of the range, but in line with overall expectations.

The final number came in at 5.9% for 2022. This is the largest increase in 40 years. A similar increase of 5.8% occurred last in 2008, during the global financial crisis! Of course this is all relative because if inflation in the broader economy is higher than this, the raise will be quickly eaten up the higher cost of goods and services.

The 2022 increase is also be over four-and-a-half times the 2021 COLA increase! See the table below for other items impacted by the COLA adjustment and other projected year-over-year changes.

I will update 2023 forecasts when available and you can stay connected via the following options.

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Social Security Item
2022202120202019
Increase over previous year5.9%1.3%1.6%2.8%
Maximum taxable earnings (wage base) subject to social security taxes$147,000$142,800137,700$132,900
Maximum social security benefit (per month)$3,345$3,148$3,011$2,861
Estimated average monthly social security benefit (all workers)$1,657$1,565$1,503$1,459
Self-Employed social security tax rate15.30%15.30%15.30%15.30%
Employee social security tax rate (deducted from your paycheck)7.65%7.65%7.65%7.65%
COLA increase for Social Security and SSI (Source: ssa.gov)

Social Security and SSI COLA

2019 to 2021 COLA increases

The Social Security Administration (SSA) officially confirmed a 1.3% COLA increase in 2021. For the average retiree that is a $20 raise from 2020 levels ($1,523 p/month). The 1.3% COLA is the smallest since 2017 and slightly below the 1.4% average over the past decade. See the table above for other items impacted by the COLA adjustment and other year-over-year changes

Other notable items

  • The maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $142,800. Above this income limit, no SS taxes will be levied
  • The maximum SS benefit goes to $3,148, with the average (across all workers) forecasted to rise to $1,543.
  • No change to the social security tax rates

The COLA increase is based on the percentage increase (if any) in the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of the current year over the average for the third quarter of the previous year in which a COLA became effective. The government, via the BLS, publishes the official annual cost-of-living adjustments typically in late October, with changes to social security, retiree benefits and medicare effective for the subsequent year.

The social security tax rate above is the combined rate for Social Security and Medicare. For employees the employer pays half the social security tax, whereas for self employed they have to pay both the employee and employer components and hence the higher tax rate.

Once a worker passes the maximum taxable earnings (or social security wage base) then all earnings above that amount are NOT subject to social security taxes.

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2018 COLA Increase – 2%

The Social Security Administration (SSA) has announced a relatively large 2% Cost of Living Adjustment (COLA) for 2018. Benefits like Social Security or Supplemental Security income, that are tied to COLA will reflect the 2% increase in January 2018. The increase is equivalent to about $27 more a month or $329 a year for the average retired worker getting social security payments. 

Based on 2% increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) has also increased to $128,700. This will result in approximately 7% to 8% of workers (~12 million people) paying more in Social Security taxes in 2018.

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2017 COLA Increase – 0.3%

Despite fears that there would not be a Cost of Living Adjustment (COLA) increase in 2017, the Social Security Administration (SSA) announced that benefits will in fact increase by 0.3% in January 2017. Over 65 million Americans who receive Social Security benefits or Supplemental Security Income payments will benefit from this increase. This is following a year (2016) where no increase was provided. The table below shows recent COLA changes and associated updates.

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[2016 COLA update] As expected the 2016 Cost of living adjustment (COLA) was 0%, meaning that no changes to your social security taxes and benefits next year. Details over 2015 levels are shown in the table below.

*A decrease in full maximum benefits occurs when there is no COLA, but there is an increase in the national average wage index.

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The Social Social Administration (SSA) announced a 1.7 percent cost of living adjustment (COLA) for 2015 (vs 1.5% in 2014). As a result the following changes, shown in the table above, to your social security taxes and income will result. All changes will take effect in January.

The main impact to tax payers will be an increase in earnings subject to the Social Security tax , which increase to $118,500 from $117,000 in 2014. The SSA estimates that this will impact 8% or 10 million off the approximately 165 million workers who will pay Social Security taxes.

Source: Social Security Administration (socialsecurity.gov)

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4 thoughts on “2022 Cost of Living Adjustment (COLA) Increases Significantly Leading to Record Social Security and SSI Benefits Raise – Latest Update and Final Numbers”

  1. I have a friend who makes $158/month in SS. This is after her COLA increase last Jan of $2. With this proposed increase she will get $4 to $5 more. Pitiful!
    I wish SS would increased to a base for everyone. The amount my friend gets is a sad refection on our nation. She would feel WEALTHY if she recieved. $200 or $300.

    Reply
  2. If No COLA in 2017 Why did the house just pass this: House Passes the Veterans’ Compensation COLA Act of 2016
    Veterans’ pensions and disability benefits are historically adjusted each year, upon Congressional approval, to reflect a cost-of-living adjustment (COLA) equal to the COLA for Social Security benefits. To that end, last week, the House passed H.R.5588, the Veterans’ Compensation COLA Act of 2016. Specifically, this bill would increase the rates of compensation for veterans with service-connected disabilities and the rates of dependency and indemnity compensation for the survivors of disabled veterans effective December 1, 2016. This legislation would provide for the same percentage increase made available by the Social Security Act. Our servicemembers and their families make many sacrifices for our freedoms and the Veterans’ Compensation COLA Act is one way of expressing appreciation for their service and sacrifices.

    Reply
    • The COLA is determined by the SSA in October. The bill just links the Veterans comp increase to that rather than having Congress to approve an increase every year. But if no COLA increase then the veterans comp won’t see an increase either. But this bill is a move in the right direction as it removes the dependency on Congress to pass a raise every year.

      Reply

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