The next year may represent a historic event in terms of Social Security for more than half of the nation, or roughly 169 million Americans, according to Census Bureau projections.
What is Social Security?
For millions of pensioners, handicapped people, and families of retired, disabled, or dead employees in the United States, Social Security is the cornerstone of their financial security. Approximately 169 million people in the United States pay Social Security taxes, with 61 million receiving monthly benefits. Social Security provides income to around one out of every four families, as per National Academy of Social Insurance.
The majority of Social Security is a pay-as-you-go system. This implies that today's employees pay Social Security taxes into the system, and the money is distributed to recipients on a regular basis. Social Security varies from corporate pensions in that it is a pay-as-you-go scheme.
In pre-funded retirement plans, money is saved up ahead of time so that it may be distributed to today's employees when they retire. Employees must be protected if the firm declares bankruptcy or goes out of business, therefore private plans must be financed in advance.
More Than Half of the Country Could Witness Increase of Social Security
The US Bureau of Labor Statistics published inflation statistics for July 2021 on August 11th. The CPI-W rose by 6 percent during the previous 12 months, according to this study. Keep in mind that this is just one of three monthly measurements used to compute the cost-of-living adjustment, or COLA for Social Security. However, it indicates that the COLA in 2022 may be the greatest in a very long time, according to a published article in MSN News.
The Senior Citizens League (TSCL), a nonpartisan senior advocacy organization, predicts that Social Security's COLA would increase by 6.2 percent next year. This would be the largest increase in benefit payments since the 7.4 percent COLA was proposed in 1982 and implemented in 1983. In other words, the last time Social Security increased benefits by this much, the current 169 million Americans were not even born.
Historical Large Payout for the Beneficiaries
On the surface, a 6.2 percent increase in Social Security benefits would seem to be a huge win for the 65 million people who now receive the benefits. After all, COLA hikes have only averaged around 1.4 percent over the last 12 years, with three years with no COLA at all. A rise of 6.2 percent would raise the typical retired worker's monthly payment by approximately $97 per month, or more than $1,160 per year, according to a published article in IQ Stock Market.
However, there are two critical points to keep in mind. To begin with, the COLA isn't intended to assist retired employees in "getting ahead." It's simply a mechanism for keeping up with the current rate of inflation. As a result, the majority of Social Security's 65 million recipients may anticipate their wage increases to be offset by increasing prices of goods and services throughout the economy.
Second, since the turn of the century, the buying power of Social Security payments has been steadily decreasing. Beneficiaries have lost 30% of their purchasing power since 2000, according to a study released by TSCL in May. To put it another way, what $100 in Social Security money could buy in 2000 would only buy approximately $70 in goods and services now. Pay increases have just not kept pace with the actual inflation that seniors face.
