There is no question that Social Security benefits have become an integral financial aspect of most seniors’ retirement plans.

That’s why many retirees rejoiced when the Social Security Administration (SSA) recently confirmed that there will be a 5.9 percent cost of living adjustment (COLA) for next year. That figure may look great on the surface, but will it really make a noticeable difference?

“This would be the highest COLA that most beneficiaries living today have ever seen,” Mary Johnson, the Social Security and Medicare policy analyst for the Senior Citizens League, said in a press release earlier this month.  

But the group also pointed out that millions of retirees have been faced with COLAs that are too low for decades, which has led to a massive loss of purchasing power.

“Over the past twelve years, COLAs have averaged a meager 1.4 percent,” the press release said. “The COLA in 2021 was just 1.3 percent, and raised average benefits by about $20. The 2022 COLA will increase an average monthly retirement benefit of $1,565 to roughly $1,657, an increase of $92.”

Making matters worse is the high inflation rates which have caused prices for goods and services to skyrocket in recent months.

“Over the past 21 years, COLAs have raised Social Security benefits by 55 percent but housing costs rose nearly 118 percent and healthcare costs rose 145 percent over the same period,” Johnson said. 

“COLAs are intended to protect the buying power of Social Security benefits but, according to consumer price data through July of 2021, Social Security benefits have lost nearly one-third of their buying power, 32 percent, since 2000, about the length of a typical retirement. Even worse, it appears that inflation is not done with us yet, and the buying power of Social Security benefits may continue to erode into 2022,” she warns.

The Senior Citizens League also reported that food prices for home consumption are expected to increase between 1.5 percent and 2.5 percent in the next year. Meanwhile, food prices for food purchased away from home will surge between 3 percent and 4 percent. Moreover, the cost to heat a home is slated to climb between 21 percent and 25 percent. Premiums for prescription drug plans will head north by about 5 percent.

“Retirees should take the Senior Citizens League’s warning to heart and not assume their high COLA will actually allow them to maintain the same spending habits without any lifestyle changes,” writes Christy Bieber of the financial site Motley Fool.

“Living on a budget to carefully manage spending during these times of high inflation will be crucial to protecting financial security in their later years,” Bieber says.

Ethen Kim Lieser is a Washington state-based Science and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.

Image: Reuters