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Why The Social Security COLA Hike Isn’t A Bonanza

John F. Wasik, Contributor

Oct. 13, 2021

The Social Security Cost-of-Living Adjustment, or COLA, is going to be 5.9% next year. While that’s a nice bump for retirement benefits, don’t order the party favors just yet.

Sure, everyone wants to keep pace with the cost of living. And Social Security is one of the few government programs to do that. Your 401(k) and IRA withdrawals are not indexed to inflation. You get dinged even more when you pay income taxes on that money.

Keep in mind that there are still out-of-pocket health expenses in retirement. Medicare premiums are deducted from your Social Security payments. And, unless you have insurance, dental, vision, long-term care and prescription drugs are also on you.

Sorry for being a spoilsport. Let’s examine the good news: The Social Security COLA is the highest in 40 years. That’s because as we work our way through the pandemic amid labor and supply shortages, everything from gasoline to restaurant dining costs more. General consumer inflation is running around 5%. The COLA is linked to the consumer price index.

All told, nearly everything costs more today because the supply chain melted down because of the pandemic. Ships containing consumer goods from Asia can’t get unloaded fast enough. Millions of workers are staying home, hoping that hourly wages will rise. Parts for nearly everything are in short supply.

In one sense, the COLA will help offset the short-term rise in inflation. But keep in mind that no one really knows if prices will subside or keep rising. The COVID virus seems to be a lot smarter than most economists.

What else do you need to know about the Social Security COLA?

  • Increased payments to approximately 8 million Social Security Disability Income (SSDI) beneficiaries will begin on December 30, 2021. (Note: some people receive both Social Security and SSI benefits).

  • Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $147,000 from $142,800.

  • Social Security and SSI beneficiaries are normally notified by mail starting in early December about their new benefit amount.

  • *The 5.9% COLA will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2022.

  • Most people who receive Social Security payments will be able to view their COLA notice online through their personal my Social Security account. People may create or access their my Social Security account online at .

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