A Potential Pay Raise
With all the talk lately about the negatives associated with inflation I knew eventually folks would start asking about something positive, such as a potential bump to Social Security benefits. Inflation can’t be all bad, right?
As you may be aware, Social Security benefits are eligible for a cost-of-living adjustment (or COLA) every year based on how inflation looks during the third quarter compared with the third quarter of the prior year. If it’s positive, even by a small amount, Social Security checks get an equivalent bump during the next year. Fortunately, if it’s negative, or deflationary, there’s no reduction in benefits. In recent years the increases have been small, maybe 1-2%. Last year it was 1.3%. And in some years, such as 2009, 2010, and again in 2015, there wasn’t a COLA because there wasn’t any inflation, or at least not quarter-over-quarter.
This year is poised to be different, however. Inflation through July was running at 5.4%, much higher than typical. And this flare up of inflation is expected to linger for a little while, perhaps through September. Average inflation during the third quarter of 2020 was about 1.25%, so the spread over that should be the approximate COLA for next year’s payments. Maybe 4% or more? It’s anyone’s guess at this point and we’ll find out this Fall. Whatever the number ends up being, Social Security beneficiaries are looking at an increase not seen since 2008 (when the COLA was 5.8%) or perhaps even longer. This is a good thing for retirees who have been getting absolutely hammered for years by low interest rates on income-producing investments like bonds and CDs. Every little bit helps in the fight to at least keep pace with inflation.
But does this mean you should rush to file early at age 62 to capitalize on this potential pay raise? The short answer is no, but the slightly longer answer is addressed in the article linked to below from Mary Beth Franklin, a noted expert on all-things Social Security (there are some annoying videos and pop-ups on the Investment News site, but I think the information is helpful nonetheless). Beyond that, stay tuned to inflation numbers in the weeks ahead. I’m not suggesting you root for inflation, of course, but those on Social Security can perhaps ironically expect some relief from it, because of it.
Have questions? Ask me. I can help.
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