After months of speculation, the government has finally announced the cost-of-living adjustment, or COLA, that Social Security beneficiaries will start seeing in their January 2022 payments – and, as predicted, it’s a whopper, relatively speaking. We’ve come across a blizzard of related news articles in the past few weeks, including this one from CNBC. In it, reporter Lorie Konish describes the good news that the 2022 COLA is sure to take some – but not all – of the sting out of rising prices for many retirees. But in her article, Konish also warns seniors that this big bump in benefits may be something we won’t be seeing again any time soon.

COLA for 2022 is Over Four Times the Size of the 2021 Adjustment

“This week’s announcement of the highest Social Security cost-of-living adjustment since 1982 was welcome news for retirees,” Konish writes. “It will help alleviate the financial pinch many are feeling.”  That’s because, starting in January, beneficiaries will receive a cost-of-living adjustment of 5.9 percent – up from a 1.3 percent benefit increase in 2021.

The 5.9 percent COLA increase, which is determined using September inflation figures, is definitely welcome news for the very large percentage of retirees who rely on Social Security for all or part of their retirement income. (The program is the only source of income for 40 percent of U.S. seniors.) Still, to put things in perspective, the CNBC article reminds us that the average beneficiary will only see about a $92 increase in their monthly retirement benefit. According to AARP, the average 2021 Social Security benefit is a bit below $1,550 per month.

COLA Boost for 2022 Makes Up for a Decade of Minimal Increases

The CNBC article points out that an increase of 5.9 percent is dramatically larger than that of any recent years. “In the past 10 years,” says Konish, “the average increase was 1.65 percent, according to the National Committee to Preserve Social Security and Medicare. In three of the past 12 years, the COLA was zero.” That’s because inflation was supposedly under control – yet the experience of most seniors reflects a different reality.

Georgetown University professor James Angel told CNBC that many seniors see their grocery bills and medical bills rising much faster than the government’s inflation figures, and their Social Security checks aren’t keeping up. “When you talk to a lot of retirees, they will very quickly complain about, ‘Oh, my inflation rate is higher than what the government says it is,’” said Angel. As it turns out, those seniors are probably correct.

Does the Government Use the Correct Cost-of-Living Gauge?

According to CNBC, the way the federal government measures and reports the ups and downs in the cost of living fails to accurately gauge the buying habits of seniors. Some groups including advocacy group The Senior Citizens League argue that the way the COLA is measured is not keeping up with the rising costs seniors pay.

As CNBC reports, “Social Security benefits have gone up by 55 percent over the past 21 years, according to The Senior Citizens League, while health-care costs rose by 145 percent and housing costs went up 118 percent during that time.” That’s due in part to the law which requires the Social Security Administration to use the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, to measure inflation.

“Proposals have suggested using another measure, the Consumer Price Index for the Elderly, or CPI-E, instead because it may better reflect seniors’ costs,” writes Konish. For example, the CPI-E is more heavily weighted toward costs related to health care, a major concern for seniors, as we wrote about this week elsewhere on the AgingOptions blog. Still, any change to the way COLAs are measured would have to be authorized by Congress, which will be difficult.

Don’t Expect Such a Big COLA Boost Every Year

Seniors are warned in the CNBC report not to expect such big COLA hikes in coming years. “This year’s more generous increase may be a one-off event,” writes Konish. A quick look back provides a healthy shot of reality. Back in 2009, the Social Security COLA was pegged at a generous 5.8 percent. “However,” says CNBC, “the following two years, the adjustment was zero, meaning beneficiaries saw no benefit increase.”

Social Security experts predict that a similar scenario could play out again. “This year’s COLA could be offset by smaller than expected annual adjustments in the future as prices return to normal,” CNBC reports.

Inflation Adjustment is an Overlooked Benefit

CNBC’s Konish writes that many beneficiaries and even some financial advisers fail to appreciate the importance of Social Security’s built-in inflation indexing. The Urban Institute’s Chantel Boyen told CNBC that cost-of-living adjustments are “an often-overlooked feature of the program,” designed to protect a recipient’s buying power. “This is a benefit that if you tried to buy it in the private market, you would find is really quite costly,” Boyens said.

The actual impact of the 5.9 percent COLA bump on retirees’ benefits will depend on the size of their checks, and for some it could be significant. A couple with combined benefits of $3,500, for example, will see their gross income jump by over $200 per month.

Big COLA is No Reason to Start Benefits Early

Nevertheless, experts warn that the big 5.9 percent COLA in 2022 is not a reason to claim early benefits. Waiting to start Social Security payments until full retirement age or after remains the preferred strategy for the overwhelming majority of retirees. “By waiting until after age 62, when they first become eligible for retirement benefits, [seniors] stand to increase their benefits by 8 percent per year up to age 70,” writes CNBC.

Yet a large majority of beneficiaries fail to heed that advice. This Motley Fool article from a few years back reported that 90 percent of beneficiaries claim Social Security before full retirement age (between 66 and 67 depending on birth year). By age 63, at least half of all adults have starting drawing benefits. Fewer than 4 percent wait until benefits max out at age 70.

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(originally reported at www.cnbc.com)