NATIONAL NEWS

Why Social Security checks are about to get a lot bigger

Oct 14, 2022, 1:05 PM | Updated: 2:07 pm
FILE - Seniors at Summit vista in Taylorsville, UT meet to discuss pet ownership in the Pet Lover's...
FILE - Seniors at Summit vista in Taylorsville, UT meet to discuss pet ownership in the Pet Lover's Club.

NEW YORK (AP) — Tens of millions of older Americans are getting the biggest raise of their lifetimes.

The U.S. government announced Thursday that Social Security beneficiaries will see an 8.7% increase in monthly payments this upcoming year, the largest increase in four decades. It’s all part of an annual ritual where Washington adjusts Social Security benefits to keep up with inflation, or at least with one narrow measure of it.

Plenty of controversy accompanies the move, known as a cost-of-living adjustment or COLA. Critics say the data the government uses to set the increase doesn’t reflect what older Americans are actually spending, and thus the inflation they’re actually feeling. The increase is also one-size-fits-all, which means beneficiaries get the same raise regardless of where they live or how big a nest egg they may have.

Here’s a look at what’s happening:

WHAT’S THE BIG DEAL?

More than 65 million Social Security beneficiaries will get an increase. The average recipient will receive more than $140 extra a month beginning in January, according to estimates released by the Social Security Administration.

WHAT DO BENEFICIARIES HAVE TO DO TO GET IT?

Nothing.

WILL THIS BE THE BIGGEST INCREASE EVER?

No, but it’s the heftiest in 40 years, which is longer than the vast majority of Social Security beneficiaries have been getting payments. In 1981, the increase was 11.2%.

WHEN WILL THE BIGGER PAYMENTS BEGIN?

January. They’re also permanent, and they compound. That means the following year’s percentage increase, whatever it ends up being, will be on top of the new, larger payment beneficiaries get after this most recent raise.

HOW BIG WAS THIS PAST YEAR’S INCREASE?

5.9%, which itself was the biggest in nearly four decades.

WHAT’S THE TYPICAL INCREASE?

Since 2000, it’s averaged 2.3% as inflation remained remarkably tame through all kinds of economic swings. During some of the toughest years in that stretch, the bigger worry for the economy was actually that inflation was running too low.

Since the 2008 financial crisis, the U.S. government has announced zero increases to Social Security benefits three times because inflation was so weak.

SO THE INCREASE IS TO MAKE UP FOR INFLATION?

That’s the intent. As Americans have become painfully aware over the past year, each $1 doesn’t go as far at the grocery store as it used to.

HAS SOCIAL SECURITY ALWAYS GIVEN SUCH INCREASES?

No. The first American to get a monthly retirement check from Social Security, Ida May Fuller from Ludlow, Vermont, got the same $22.54 monthly benefit for 10 years.

Automatic annual cost-of-living adjustments didn’t begin for Social Security until 1975, after a law passed in 1972 requiring them.

HOW IS THE SIZE OF THE INCREASE SET?

It’s tied to a measure of inflation called the CPI-W index, which tracks what kinds of prices are being paid by urban wage earners and clerical workers.
More specifically, the increase is based on how much the CPI-W increases from the summer of one year to the next.

IS THAT THE INFLATION MEASURE EVERYONE FOLLOWS?

No. People generally pay more attention to a much broader measure of inflation, the CPI-U index, which covers all urban consumers. That covers 93% of the total U.S. population.

The CPI-W, meanwhile, covers only about 29% of the U.S. population. It has been around longer than the CPI-U, which the government began compiling only after the legislation that required Social Security’s annual increases be linked to inflation.

IS THAT WEIRD?

Yes, and some critics have argued for years that Social Security should change to a different measure, one that’s pegged to older people in particular.

Another experimental index, called CPI-E, is supposed to offer a better reflection of how Americans aged 62 and above spend their money. It has historically shown higher rates of inflation for older Americans than the CPI-U or CPI-W, but it has not taken hold. Neither have other measures compiled by organizations outside the government that hope to show how inflation affects older Americans specifically.

Recently, the CPI-E has shown a bit milder inflation than CPI-W or CPI-U.

WHY NOT USE ONE OF THOSE OTHER INDEXES?

To calculate the CPI-E, the government pulls from the same survey data used to measure the broad CPI-U. But there are relatively few older households in that data set, meaning it may not be the most accurate.

All indexes give just a rough approximation of what inflation really is. But the more pressing challenge may be that if the government switched to a different index, one that showed higher inflation for older Americans, Social Security would have to pay out higher benefits.

That in turn would mean a faster drain on Social Security’s trust fund, which looks to run empty in a little more than a decade at its current pace.

HOW IS THE SIZE SET FOR SOCIAL SECURITY BENEFITS?

Through a complicated formula that takes into account several factors, including how much a worker made in their 35 highest-earning years. Generally, those who made more money and those who wait longer to start getting Social Security get larger benefits, up to a point.

This year, the maximum allowed benefit for someone who retired at full retirement age is $3,345 monthly.

WILL RICH PEOPLE GET THE SAME BOOST IN SOCIAL SECURITY?

Yes. Everyone gets the same percentage increase, whether they have millions of dollars in retirement savings or are just scraping by.

IF THE INCREASE IS BASED ON INFLATION IN URBAN AREAS, WILL PEOPLE IN RURAL AREAS GET THE SAME BOOST?

Yes.

“The COLA doesn’t take into account where you live or your actual spending patterns,” said William Arnone, CEO of the National Academy of Social Insurance.

“For some people, it’s an overstatement of cost of living for, say, small towns in the Midwest versus urban areas like New York, D.C. or Chicago. With many older people choosing to live in suburban areas or rural areas, some will benefit more” than others from the same-sized increase.

DO BIGGER PAYOUTS NOW MEAN SMALLER PAYOUTS IN THE FUTURE?

The expected increase is great news for every beneficiary and for the businesses around them that could see more in sales. But it also means the Social Security system will pay out more money sooner, which can add more strain on its trust fund.

One year of big increases driven by inflation won’t drain the system by itself, but it’s already been heading toward an unsustainable future. The latest annual trustees report for Social Security said its trust funds that pay out retirement and survivors and disability benefits will be able to pay scheduled benefits on a timely basis until 2035. After that, incoming cash from taxes will be enough to pay 80% of scheduled benefits.

WILL THIS MAKE INFLATION WORSE?

It will put more cash in the hands of people who mostly really need it, and they’re very likely to use it. That will feed more fuel into the economy, which could keep upward pressure on inflation.

Social Security’s boost, though, will have a smaller impact on the economy than past stimulus packages provided by Washington, snarls in supply chains caused by worldwide shutdowns of businesses or other factors that economists say are behind the worst inflation in decades.

SO EVERYTHING’S GOING TERRIBLY?

The risk of a recession seems to grow by the day, but many economists expect inflation to come down as interest-rate hikes take effect and supply chains continue to improve.

Economists at Deutsche Bank, for example, expect inflation to ease from 8.2% this past August to 7.2% in the last three months of this year. In 2023, they see it dropping to 3.9% in the second half of the year.

This is key for many Social Security beneficiaries. That would mean the COLA they receive this upcoming year would be bigger than the inflation they’re feeling at the moment. That would help make up for this past year, where actual inflation far outstripped the cost-of-living increase they got in January 2022.

KSL 5 TV Live

Top Stories

National News

U.S. President Joe Biden delivers remarks at the National Prayer Breakfast at the U.S. Capitol on F...
Colleen Long and Chris Megerian, Associated Press

Biden urges unity at prayer breakfast under new management

President Joe Biden attended the annual National Prayer Breakfast on Thursday in Washington and delivered a message of unity.
13 hours ago
FILE: Groundhog handler AJ Derume holds Punxsutawney Phil, who saw his shadow, predicting a late sp...
Associated Press

Phil’s Groundhog Day prediction: 6 more weeks of winter

A furry critter in a western Pennsylvania town has predicted six more weeks of winter during an annual Groundhog Day celebration.
13 hours ago
Law enforcement officers aim their weapons at a home during a standoff in Grants Pass, Ore., on Tue...
Associated Press

Oregon kidnapping suspect dies of self-inflicted gunshot

The suspect in a violent kidnapping in Oregon has died of a self-inflicted gunshot wound.
2 days ago
Federal Reserve Board Chairman Jerome Powell speaks during a news conference after a Federal Open M...
Christopher Rugaber, AP Economics Writer

Fed lifts rate by quarter-point and signals more hikes ahead

The Federal Reserve extended its fight against high inflation Wednesday by raising its key interest rate by a quarter-point, its eighth hike since March.
2 days ago
Six-year-old Mason Stonehouse was playing on his dad’s phone before bedtime and spent about $1,00...
CNN

Michigan six-year-old orders $1,000 worth of food on Grubhub

A six-year-old as playing on his dad's phone before bedtime and spent about $1,000 on Grubhub orders.
2 days ago
FILE - U.S. Secret Service agents are seen in front of Joe Biden's Rehoboth Beach, Del., home on Ja...
Eric Tucker, Colleen Long and Zeke Miller, Associated Press

Biden lawyer: FBI finds no classified docs at beach house

The Federal Bureau of Investigation searched President Joe Biden's vacation home in Rehoboth Beach, Delaware, on Wednesday without finding any classified documents, the president's personal attorney said.
2 days ago

Sponsored Articles

vintage photo of lighting showroom featuring chandeliers, lamps, wall lights and mirrors...
Lighting Design

History of Lighting Design | Over 25 Years of Providing Utah With the Latest Trends and Styles

Read about the history of Lighting Design, a family-owned and operated business that paved the way for the lighting industry in Utah.
Fiber Optical cables connected to an optic ports and Network cables connected to ethernet ports...
Brian Huston, CE and Anthony Perkins, BICSI

Why Every Business Needs a Structured Cabling System

A structured cabling system benefits businesses by giving you faster processing speeds and making your network more efficient and reliable.
notebook with password notes highlighted...
PC Laptops

How to Create Strong Passwords You Can Actually Remember

Learn how you can create strong passwords that are actually easy to remember! In a short time you can create new ones in seconds.
house with for rent sign posted...
Chase Harrington, president and COO of Entrata

Top 5 Reasons You May Want to Consider Apartment Life Over Owning a Home

There are many benefits of renting that can be overshadowed by the allure of buying a home. Here are five reasons why renting might be right for you.
Festive kitchen in Christmas decorations. Christmas dining room....
Lighting Design

6 Holiday Decor Trends to Try in 2022

We've rounded out the top 6 holiday decor trends for 2022 so you can be ahead of the game before you start shopping. 
Happy diverse college or university students are having fun on their graduation day...
BYU MBA at the Marriott School of Business

How to Choose What MBA Program is Right for You: Take this Quiz Before You Apply!

Wondering what MBA program is right for you? Take this quiz before you apply to see if it will help you meet your goals.
Why Social Security checks are about to get a lot bigger