On Wednesday, October 13, 2021, the Social Security Administration announced that federal pensioners’ yearly cost-of-living adjustment (COLA) would be 5.9% in 2022, the highest rise since 1982.
The announcement, however, reignited calls for parity in federal employee retirement systems.
The annual change in workers’ third-quarter consumer price index is used to determine Social Security cost-of-living adjustments (COLA). Members’ yearly annuity increases are also calculated on this premise by the federal government’s Civil Service Retirement System (CSRS). As a result, next year’s annuity payments to CSRS retirees will increase by 5.9%.
With Cost-of-Living Adjustments (COLA) Comes Social Security Increases.
Other major figures related to the Social Security program have increased, in addition to the 5.9% COLA increase in benefits for January.
Up to $147,000 of wages will be subject to the 6.2% Social Security payroll tax, up from $142,800 previously.
Employees on FERS will only have to pay the civil service retirement payment (which can either be 0.8%, 3.1%, or 4.4%, depending on when they got hired).
CSRS Offset employees, however, will continue to pay the same 7% overall tax (6.2% towards the Social Security program and 0.8% to the federal retirement fund), but with the whole money going to the federal retirement fund. “Pure” CSRS employees aren’t subjected to Social Security taxes.
The COLA increase linked to the COVID-19–fueled spike in inflation will be good news for the about 70 million people who rely on the program—including retirees, disabled people, and others. For the average retiree, who receives a $1,565 monthly check in 2022, the increase means an extra $92 each month, increasing the total payment to $1,657.
According to Ken Thomas, National president of the National Active and Retired Federal Employees Association, the 5.9% COLA provides a buffer for seniors against current inflation after years of little or no adjustments.
The Elderly Citizens League, a group that works for senior citizens in the United States, has also emphasized that COLAs applied to Social Security payments have not kept up with market price increases over the last few decades. This annual boost in monthly Social Security payments would go a long way toward protecting seniors’ and disabled people’s buying power.
However, the news is not that good for many federal retirees who retired under FERS, as their 2022 increase will be 4.9%.
FERS retirees receive the entire COLA if CSRS sees an increase of less than 2% every year. FERS participants will only see a 2% increase in COLA if the adjustment is between 2% and 3%.
A statement from the CPI for all urban consumers confirms that inflation rose by 5.4%. The Bureau of Labor Statistics tracks the rate of inflation.
How Do you Calculate Your Increased Benefit?
Take your monthly Social Security payment and multiply it by 5.9% to get the increase you will see on your check. Apply the result to the previous amount you received to get the new check’s total.
Not to worry, beneficiaries will get letters from the Social Security Administration stating how much of their payments will increase.
When Will Social Security Benefits Be Increased?
According to the Social Security Administration, roughly eight million beneficiaries will get their first check on December 30, 2021, with the COLA applied. According to the SSA’s distribution schedule, more than 64 million Social Security recipients will begin receiving the enhanced benefits in January.
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I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.
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