2022 COLA - Sweeter Than Expected

Written by Andrew Roth

We’re not talking about soda pop, but instead the Social Security Administration’s COLA (Cost of Living Adjustment) for 2022. 

There was some buzz in mid-October when the SSA announced the cost-of-living adjustment for 2022 would be 5.9%--meaning retirees who collect social security benefits will see their payments increase by that percentage starting in January. According to AARP, this amounts to an approximate $92/month increase for the average retired worker.

 While this is undeniably a benefit to those who are collecting, for others it serves as an affirmation that their concerns about inflation are well placed. Historically, this is the largest COLA increase since 1982—after COLA peaked at a whopping 14.3% in 1980!

Putting things in perspective, COLA since 2009 has been relatively muted, averaging only 1.7% per year including the number announced for 2022 based on my own calculations (with zero COLA increases in 2009, 2010, and 2015!). Thinking longer term, 1.7% is less alarming and more in-line with the numbers we use for our projections.

As financial planners, we are glad the clients we’re helping through retirement will receive an income boost. We also recognize that the debate over lasting versus “transitory” inflation is a hot topic these days. Our hope is that this rate of inflation is brief, and we settle back toward a normalized number over the next few years. 

Fortunately, this has been a focus of our office and our institutional partners for some time as it relates to our portfolios. Inflation acts as a headwind on all asset classes, but with a long enough timeline and with risk tolerance in mind, our preference is to invest in stocks and sectors that are more adaptable to inflationary pressures and avoid asset classes with negative rates of real return when possible. These ideas have been reflected in our portfolio reallocations throughout the year. 

If you have questions, feel free to reach out.  

This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.