On October 13th, 2021 the Social Security Administration announced that individuals currently receiving benefits will see a 5.9% increase to their payments at the beginning of 2022. This increase is due to the cost-of-living adjustment (COLA) that is determined and put into place at the end of each year. While in years past the adjustment has been much more modest (1.6% in 2019 and 1.3% in 2020), the 5.9% increase marks the largest single-year bump since 1980 (7.9%).
How does this affect those receiving benefits?
Social Security plays an integral part in the majority of people’s retirement plans. In 2021, roughly 70 million people received Social Security benefits. Of the 70 million beneficiaries, over 50% live in households in which Social Security is used to cover over half of their monthly living expenses. As inflation figures increase to recent highs, the cost-of-living adjustment will help ensure that these individuals keep a similar purchasing power to that of years past.
Due to the uncertainty of what the Social Security program will look like in the future, our team at Financial Plans & Strategies, Inc. does not incorporate a cost-of-living adjustment when preparing retirement plans. We would much rather be met with a pleasant surprise at the end of each year, than being left empty handed and having to answer the “Well... what do we do now?” question if the cost-of-living adjustment were ever to be eliminated. Although the increase to Social Security benefits is a positive, it is important that we, as investors and planners, stay disciplined and committed to the retirement plans and budgets that have been put together.
As we head into the homestretch of 2021, our team at Financial Plans & Strategies wishes you and your families safe and happy holidays. If we can be of assistance with any end-of-year items, please do not hesitate to reach out to us at (317) 882-7675.