Big Social Security Increase In 2022 - YouTube

Social Security payments are  likely to get a sizable increase  

just how much of an increase could you anticipate  

and how are cost of living adjustments  determined that is the subject of this video.

Welcome to another episode of the Financial Fast  Lane my name is Lane Martinsen if you're new to  

this channel we discuss retirement planning topics  specifically for those age 50 and over now social  

security was designed to keep up with inflation  and so it has a cola a cost of living adjustment  

and it is based on inflation based on the  consumer price index so now prior to 1975 every  

cost of living adjustment actually required  an act of congress to approve it since 1975  

the cola adjustments are automatic and they're  based on a specific consumer price index which  

i'm going to explain but first let's take a look  at some history and some past increases or past  

adjustments so if we go back to 1975 this was  a very inflationary time right we had a full  

eight percent cost of living adjustment to social  security benefits 1976 6.4 we had a 5.9 6.5 9.9  

in 1980 we had the largest increase ever of 14.3  percent and if you can remember 1980 and 1981  

what those years were like inflation  and interest rates were very high  

the average for those these 10 years  is about uh seven and a half percent  

but if we take a look at the next 20  years the inflation slowed down a lot  

and the average was about 2.9 over the  next 20 years now from 2005 to 2014 well  

you know in 2008 we had the financial crisis  and so in 2009 2010 we actually had deflation  

and so there was no increases in the  social security payments those years  

and if we take a look at the last six years  2015 was a zero 2016 was close to zero  

we averaged that out 1.3 percent is what it  has increased over the last six years so the  

question is what increase are we going to see  for 2021 and for everything that we can see  

it looks like this will probably be one of the  biggest increases over the last decade for sure  

what will it be we don't know yet but i'll show  you how it's going to be determined so there are  

different consumer price indexes the one that  is used for social security is is the cpiw  

it's the urban wage earners and clerical workers  now this this is the the index that has been  

used since 1975 75 but it is it really looks at  people who are age under 62. so it's not maybe  

necessarily the best index to use for people  who are on social security benefits and so  

but first and i'm going to show i'm going to tell  you about some of these other possible indexes  

that you could be switched to but first the cpiw  this is how it's weighted we have 15 percent of  

the cost of food 10 energy 31 housing apparel only  three percent transportation six and medical 11  

and then all other um at 24 so this is what  determines whether social security benefit  

will be increased or not now in 1987 congress  asked the bureau of labor and statistics to  

create an index that was more specific to elderly  people it's the cpie and so it's it tracks more of  

the spending habits of those who are over 862 and  so the idea is that that would be a better index  

to reflect true inflation for people who  are retired or over 62. it's only been  

experimental it has not been put into place  it is an index that could replace the cpiw  

but as of now that has not happened but it  is a future possibility another index that  

could possibly be used in the future is the cpiu  it's also called the chained cpi so this index  

tends to track more of the spending habits so  if people if there's if there's inflation and  

that inflation changes the people's spending  habits it reflects some of those changes and so  

it has the potential to have lower cost of living  adjustments than maybe the cpiw or the cpie would  

but i'm going right to the the website  of the bureau of labor and statistics  

they show us what's going on here we can  look at this on a month by month basis  

in april we had the biggest increase  in easily a decade for one month now  

that's not going to that doesn't mean  we're going to have a 4.7 percent  

cost of living adjustment because it has not  yet been determined it's going to be based off  

of what we have in july august and september and  so it is the it's the third quarter of the year  

whatever those whatever that averages out to be  is what will be the cost of living adjustment  

for the next year in this case 2022 now if  you'd like to track and see exactly what  

the index is it comes in with here on a month  by month basis i'm going to provide the link  

in the description below where you can just  click and it'll take you right to this screen  

and you can see exactly as the numbers come in  now if you are pre-retirement and you have not  

yet started your social security benefits i would  highly recommend another video where i discuss  

the best age to file and so you understand the  strategies behind that and also there's a video on  

how your social security benefits may or may not  be taxed in retirement so they'll be linked here  

at the end i hope you found this video educational  and i look forward to seeing you in the next video