Calculating Your 2022 COLA With Eager Anticipation

The 2022 COLA will be determined by inflation during a three-month period. Here are the latest inflation figures impacting the January COLA payment.

Many readers are on edge, perhaps with excitement, about the 2022 COLA (cost of living adjustment). This is because of the probable size of the 2022 COLA increase.

Here is the item on the 2022 COLA that generates the most interest. On September 14th, the Senior Citizens League (TSCL), a nonpartisan seniors advocacy group, calculated the Social Security Cost of Living Adjustment (COLA) for 2022 (and this will also be true for federal annuities for most readers) will be between 6% to 6.1%.

This latest projection is down slightly from the previous month’s estimate of 6.2%. If this projection holds up, it would still be the biggest COLA increase since 1982.

30% Loss in Purchasing Power Since 2000

The reason for the increasing interest in the 2022 COLA is obvious. The increase represents the amount of the “raise” that federal retirees and Social Security beneficiaries will receive in their annuity payments starting in January.

While it may be technically correct to refer to the increase as a “raise”, it is not an actual hike in benefits. It is an increase in the money that those receiving money from the federal government will receive in 2022 reflecting the inflation beneficiaries have been experiencing over the past year. In other words, as the cost of everything goes up, annuity payments and Social Security benefits go up—after the inflation has already increased.

While some readers may be excited about a bigger check coming in January (and a bigger check will be coming in January) it is only the CPI-W readings from July to September that make a difference in the 2022 COLA. The first nine months are not used in calculating the 2022 COLA. The months of July – September are the important months in next year’s annuity or Social Security increase.

In other words, when the data for September are announced in mid-October, the final COLA calculations for 2022 will be available.

The actual result for those getting a COLA each year is a significant loss in purchasing power. In other words, how much can be purchased with every dollar goes down.

According to the Senior Citizens League, Social Security benefits have lost 30 percent of buying power since 2000. That calculation is already out of date as the inflation rate has increased significantly this year and next year’s COLA will not be an accurate reflection of the actual inflation rate.

So, while those getting the 2022 COLA may be happy about the higher check, put the reality of the situation into proper perspective—you have more money but will not be able to buy as many goods and services regardless of the increase. The method of calculating expenses for retirees actually measures inflation on a number of items of less importance to seniors than to younger Americans.

Latest Inflation Increase from August

The Consumer Price Index for urban wage earners and clerical workers (CPI-W) increased 5.8% over the last 12 months. For the month of August, this index went up 0.2%.

In effect, the rate of inflation is still a factor in America’s economy and inflation is still a big factor, as the cost of supplies of products, services, and labor continued to drive prices higher.

Many companies are predictably increasing their prices to consumers as they pass on their higher labor and materials costs in what they are charging customers. The sharp uptick in restaurant prices in the past few months suggests that this pass-through is showing up in the inflation.

Companies have to estimate how much of these increases can lead to a corresponding increase in prices. In an environment where inflation continues to rise every quarter, it is a guessing game for companies as to how much they can match inflation in raising their prices. If they charge too much, consumers cannot afford to buy their products. If they do not raise prices enough, the company will go out of business as it cannot remain profitable.

Inflation Impact is High But Still Less than 1980’s

While we will not know the 2022 COLA until October, we do know the full increase is likely to be about 6%. The last time an annual COLA was higher than the latest projection was in July 1982 when there was a different COLA system. In that year, the COLA was 7.4%—likely the last time a COLA was as high as it is likely to be for 2022. For those with an eye on history, President Carter left office in 1981. The largest COLA was in 1980 when he was still in office. In that year, the COLA hit 14.3%.

The highest COLA in recent years was in 2009 when it was 5.8%. The second-highest reading was 4.1% in 2005. The 2022 COLA will take over the number two position for the highest COLA in recent memory and, perhaps, move into the number one position over a 30-year period.

2022 could be the highest COLA increase since the rapid inflation that started during the Carter administration. The COLA in 1982 dropped to 7.4% from the 11.2% high of 1981.

Here is a listing of COLA increases over the past 30 years.

  • January 1991 — 5.4%
  • January 1992 — 3.7%
  • January 1993 — 3.0%
  • January 1994 — 2.6%
  • January 1995 — 2.8%
  • January 1996 — 2.6%
  • January 1997 — 2.9%
  • January 1998 — 2.1%
  • January 1999 — 1.3%
  • January 2000 — 2.5%
  • January 2001 — 3.5%
  • January 2002 — 2.6%
  • January 2003 — 1.4%
  • January 2004 — 2.1%
  • January 2005 — 2.7%
  • January 2006 — 4.1%
  • January 2007 — 3.3%
  • January 2008 — 2.3%
  • January 2009 — 5.8%
  • January 2010 — 0.0%
  • January 2011 — 0.0%
  • January 2012 — 3.6%
  • January 2013 — 1.7%
  • January 2014 — 1.5%
  • January 2015 — 1.7%
  • January 2016 — 0.0%
  • January 2017 — 0.3%
  • January 2018 — 2.0%
  • January 2019 — 2.8%
  • January 2020 — 1.6%
  • January 2021 — 1.3%

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47