Social Security benefits are getting a little bigger for the millions of people who receive them. That's because the Social Security Administration recently announced benefits recipients are entitled to a 5.9% cost of living adjustment (COLA) in 2022.
COLAs happen in most years to ensure those who get benefits don't lose buying power as prices go up. But while the Social Security raise has been announced already, you won't see extra money just yet.
The type of Social Security benefits you get will determine when you can expect to start receiving your bigger checks.
This is when your Social Security checks will get bigger
If you are one of the millions of Americans currently receiving Social Security retirement checks, you'll start to see extra income in your payment arriving in January of 2022. And if you are someone who receives Supplemental Security Income (SSI) benefits, you can expect to receive your first bigger check by Dec. 30, 2021.
This means that retirees will enjoy their added benefits from the COLA for all of next year but will need to wait a little longer than SSI beneficiaries for their larger payments to come for the first time. SSI beneficiaries will also get these larger payments for all of next year, although their first bigger check will come in 2021.
Don't get too excited about your larger checks
While you may be excited to see more money coming from the Social Security Administration, it's important to realize that periodic COLAs occur only when the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) shows that prices have risen year over year.
In other words, while people typically refer to COLAs as a "Social Security raise," the COLA is not actually going to make you richer, as you might expect a raise would.
Instead, the extra cash that starts coming with your Dec. 30, 2021, payment or with your January 2022 payment is designed only to ensure that you don't lose ground and that your buying power doesn't fall as prices of goods and services rise.
Unfortunately, a large benefit increase next year probably won't even do that since COLAs tend to fall short of accurately accounting for the inflation many Social Security recipients experience. That's because CPI-W doesn't accurately reflect the pricing increases likely to hit hardest on seniors getting retirement benefits. Seniors spend differently than urban wage earners and clerical workers, and CPI-W often underestimates the effects of some key spending increases.
Social Security beneficiaries have been losing ground for decades, with the buying power of benefits falling. This trend will most likely continue in 2022 as rising food, housing, and healthcare costs will eat into the value of the COLA. So although you will see larger checks starting at the end of this year or the beginning of next, you'll need to make smart financial decisions about how you use the money to avoid a decline in your quality of life.
Budgeting carefully to account for the costs of inflation will be important even when bigger checks arrive. This could mean, in some cases, swapping out more expensive items for more readily available ones that cost less, or taking advantage of coupons and senior discounts when they provide an opportunity to save.