Updated April 26, 2021
Here is a too early to tell, well in advance look at the 2022 COLA increase. How much could these things go up in 2022? The 2020 OASDI Trustees Report predicts a between a 1.5% to 2.9% increase. Inflation, a resurgence in the economy and other factors could all lead to a sizable increase in COLA and thus far the early numbers point to an increase in 2022.
COLA increases are based on the inflation measurement period of the 3rd quarter (July, August, and September) compared to the previous 3rd quarter.
2022 COLA (Cost-of-Living Adjustments) Increase Watch
2021 COLA & CPI Summary
- The March CPI-W (258.935) increased Year over Year by 3.01%.
- The Q1 CPI-W (257.025) increased Year over Year by 2.17%.
- The March 1-month increase was the largest rise since a 0.6 percent increase in August 2012.
- Over the last 12 months, the all items index increased 2.6 percent before seasonal adjustment. Note March 2020 was a not a normal month when most of the economy was shutdown.
- Overall consumer price inflation is pacing at 2.2 percent which is very close to the 2 percent that the Federal Reserve aims for.
- The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in March on a seasonally adjusted basis after rising 0.4 percent in February.
- The gasoline index continued to increase, rising 9.1 percent in March and accounting for nearly half of the seasonally adjusted increase in the all items index.
- The natural gas index also rose, contributing to a 5.0 percent increase in the energy index over the month.
- The food index rose 0.1 percent in March, with the food at home index and the food away from home index both also rising 0.1 percent.
- The shelter index increased in March as did the motor vehicle insurance index, the recreation index, and the household furnishings and operations index.
- Indexes which decreased over the month include apparel and education.
- The index for all items less food and energy rose 0.3 percent in March.
- The all items index rose 2.6 percent for the 12 months ending March, a much larger increase than the 1.7 percent reported for the period ending in February.
- The index for all items less food and energy rose 1.6 percent over the last 12 months, after increasing 1.3 percent over the 12 month period ending in February.
- The food index rose 3.5 percent over the last 12 months, while the energy index increased 13.2 percent over that period.
Reasons for a COLA Increase in 2022
- With vaccine distribution underway and restrictions easing, the economic impact may subside by the time the CPI-W measurement period begins in July 2021.
- Americans will be more at ease partaking in activities such as business trips, vacations, concerts, attending games and indoor dining.
- Some prices that had been depressed have begun to reassert themselves, such as apartment rents, air fares and hotel rates.
- Gasoline prices continue to rise.
- Many experts are forecasting inflation to move higher this year.
- The Federal Reserve is not expected to raise interest rates in 2021.
- St. Louis Federal Reserve Bank President James Bullard on March 23 predicted a 2.5% increase in 2021 and easing only slightly in 2022.
- Federal Reserve Vice Chair Richard Clarida told Bloomberg on April 9 “we expect in our baseline most of that to be transitory and for inflation to return later this year to around 2%.”
Reasons for a Lower Than Expected COLA Increase in 2022
- April likely also will show a sharp rise, but then the numbers are supposed to decrease as the worst months of the shutdown fall out of the data comparisons.
- Travel, entertainment and dining continue to be depressed though rising.
- Moderate increase in prices are expected to be the monthly norm for a while.
- Cost of shelter is currently low due to the pandemic.
- Unemployment is expected to remain elevated throughout the year and could tamp down inflation.
- U.S. economic growth will most likely continue to be slow due to supply shortages, uncertainties in the economy and most importantly the pandemic.
Could Negative Inflation (Deflation) Affect 2022 COLA?
Deflation, as it applies to COLA, is a decrease in the CPI-W from the previous 3rd quarter to the next. Put another way, deflation is negative inflation. Fortunately for COLA beneficiaries in 2023, the law protects benefits from decreasing due to deflation. Meaning the COLA rates will be the same in 2022, if there is deflation.
However, deflation could impact 2022 because if there is negative inflation, it will get deducted from the next positive COLA. For example, assume this year’s COLA is -.5%. If 2023’s COLA calculation is a 1.5% increase, recipients would only see a 1.0% increase (1.5% – 0.5% = 1.0%).
This happened once before in 2011. For a COLA to have been triggered for 2011, the CPI-W would have had to not only increase, but increase beyond the highest point it had reached at the end of the 2008 third quarter. Although the CPI-W rebounded in 2010 it was not enough to surpass its 3rd quarter 2008 level, and hence no COLA increase in 2011.
Since 1975, when Social Security benefits were first indexed to the CPI-W, negative inflation has only happened twice. First in 2009 (no 2010 COLA increase) and again in 2015 (no 2016 COLA increase). The 2011 COLA value did increase but not enough to make-up for the deflation on the 2010 COLA.
2021 COLA (Cost-of-Living Adjustments)
The 2021 Cost of Living Adjustment (COLA) increase for the 70 million Americans who rely on Social Security, VA disability, military retirement and other government benefits was 1.3%. While a many were hoping for a much higher increase in 2021 this is positive news that there will be any increase given earlier projections of no increase at all. COLA increases are based on the inflation measurement period of the 3rd quarter (July, August, and September) compared to the previous 3rd quarter.
“The 1.3 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2021.” ~ SSA statement
#BREAKING! Approximately 70 million Americans will get a 1.3% increase in monthly #SocialSecurity benefits and #SSI payments in 2021. Check our blog later this morning for more information: https://t.co/42WeesNNHV #COLA #2021COLA pic.twitter.com/BpK20EC2av
— Social Security (@SocialSecurity) October 13, 2020
2022 Cola Effective & Payment Dates:
- Retired military veterans, VA rates for compensation and pension for disabled veterans and surviving families will be effective December 1, 2020 and will be reflected on the first check to be paid on December 31, 2021.
- Social Security benefits will be effective beginning with the December 2021 benefits, which are payable in January 2021.
- Federal SSI & SSDI payment levels will be effective for payments made for January 2021.
2021 COLA (Cost-of-Living Adjustments) Increase Results
Q3 (July-Sept.) 2020 COLA & CPI Summary
- The Q3 (July-Sept.) CPI-W (253.412) increased Year over Year by 1.28%.
- The September CPI-W (254.004) increased Year over Year by 1.18%.
- The August CPI-W (253.597) increased Year over Year by 1.39%.
- The July CPI-W (252.636) increased Year over Year by .96%.
- The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in August on a seasonally adjusted basis after rising 0.6 percent in July. The monthly increase in the seasonally adjusted all items index was broad-based.
- A sharp rise in the used cars and trucks index was the largest factor, but the indexes for gasoline, shelter, recreation, and household furnishings and operations also contributed.
- The energy index rose 0.9 percent in August as the gasoline index rose 2.0 percent.
- The food index rose 0.1 percent in August after falling in July; an increase in the food away from home index more than offset a slight decline in the food at home index.
- The food index rose 0.1 percent in August after falling in July.
- The energy index rose 0.9 percent in August, its third consecutive increase.
- The index for all items less food and energy increased 0.4 percent in August after rising 0.6 percent in July.
- The all items index increased 1.3 percent for the 12 months ending August; this figure has been rising since the period ending May 2020, when the 12-month
increase was 0.1 percent.
- The index for all items less food and energy increased 1.7 percent over the last 12 months.
Veterans’ Compensation Cost-of-Living Adjustment Act of 2020 (H.R. 6168)
On Thursday, September 24, 2020, the the Senate passed a cost-of-living increase for veterans benefits in 2021, so long as Social Security and COLA increase as well. This bill directs the VA to increase, as of December 1, 2020, the rates of VA disability, additional compensation for dependents, the clothing allowance for certain disabled veterans, and Dependency and Indemnity Compensation (DIC) for surviving spouses and children.
While Social Security benefits are automatically adjusted annually to keep pace with inflation, Congress must pass legislation every year to provide a cost-of-living adjustment (COLA) for veterans and surviving family members receiving these types of compensation from VA. Congress has done so for decades.
Note: This does NOT guarantee an increase in 2021 for veterans but rather guarantees veterans will receive an increase, if there is also a Cost-of-Living-Adjustment increase.
Why a COLA Increase May Not Help Social Security Recipients
If Medicare climbs at an equivalent or higher rate any increase may be offset by medicare premiums. Additional senior citizen household spending has typically outpaced COLA because the measurement to determine COLA doesn’t reflect the expenses that impact seniors most, like healthcare (not a heavy COLA calculation) and gas (a heavy COLA calculation).
Will Chained CPI Replace CPI-W?
Chained CPI is a new method for measuring inflation and was recently adopted with the new tax plan. Chained CPI dampens inflation by as much as .2 to .3 percent which has many advocacy groups concerned that this method will carry over to COLA. Few people are against a better measurement of inflation, in fact many advocacy group believe even the CPI-W is not the best measurement for retirees, however, Chained CPI many contend would be a step backward.
COLA (Cost-of-Living Adjustments) are for the following individuals or areas:
- Retired Military Veterans
- Disabled Veterans – See VA Disability Rate Tables
- Veterans’ Pension Benefits – Veterans Pension Rate Tables
- Survivor Benefit Annuitants – Survivors’ Pension Rate Tables
- Surviving Families of Veterans – Parents’ Dependency and Indemnity Compensation (DIC) Tables
- Social Security recipients
- Federal Civilian Retirees
- Supplemental Security Income (SSI)
- Social Security Disability Insurance (SSDI)
- Eligibility for Medicare Extra Help and Medicaid
- Federal & State food and housing assistance programs
|Quarterly CPI-W for 2020 & 2021|
|Monthly CPI-W for 2020 & 2021|
|Month||2020 CPI-W||2021 CPI-W||YoY Increase/Decrease|
|2021 Official COLA Measurement – CPI-W
|Third quarter total||760.237||TBD|
|Average (rounded to the nearest 0.001)||253.412||TBD|
|Inflation According to the CPI-W||1.3%||TBD|
|Quarterly CPI-W for 2019 & 2020|
|Monthly CPI-W for 2019 & 2020|
|Month||2019 CPI-W||2020 CPI-W||YoY Increase/Decrease|
The table below shows estimated future cost-of-living adjustments (COLAs) as determined by assumptions in the 2020 Trustees Report.
|COLA Estimates by Year
The Board of Trustees regards the intermediate estimates as their best estimates.
The CPI-W takes into account eight major spending categories:
- Food and beverages
- Medical care
- Education and communication
- Other goods and services
How COLA is Determined
The Cost-of-Living-Adjustment (aka Cost-of-Living Allowance) is determined by the Bureau of Labor Statistics’ Consumer Price Index (CPI-W). It is based on the percentage increase of the CPI-W from the 3rd quarter of the previous year versus the current year’s 3rd quarter (July, August, and September).
Veterans who retire during the current calendar year will receive a temporary partial COLA due to already receiving a military pay raise in January.
- The COLA increase is only set at the CPI-W if the increase is less than 2 percent.
- If inflation is between to 2 to 3 percent then COLA is set at 2 percent.
- If the CPI-W is greater than 3 percent then COLA is set at 1 percent below the CPI-W.
COLA Versus Federal Pay Increases
Pay increases for current federal workers and COLA for retired workers often differ because they are based on changes in different economic variables.
Federal Pay increases are based on changes in private-sector wages and salaries. Increases in pay for federal civil service workers therefore are indexed to increases in the wages and salaries of private-sector employees. The objective of federal pay policy is to keep pay in the federal government competitive with pay in the private sector.
Cost-of-living adjustments (COLA) ensures that a retiree’s income will purchase the same amount of goods and services after years of retirement that it purchased at the start of retirement.
|History of COLA (cost-of-adjustments) since 1975|
|Money & Finance||COLA Adjustments|
|VA Disability Rates||Social Security|