Cost of Living Increase For 2022 And What It Means For You
2022 has been a terrible year for inflation. In June, inflation hit a 40-year high of 9.1%. That increase means our dollars have less buying power, a lot less. For those on a fixed income, as some people who receive Social Security are, high inflation can be especially damaging. Luckily, there was a significant cost of living adjustment for 2022.
We’ll explain what cost of living is, how inflation impacts it, the cost of living increase for 2022, and what we might expect in 2023.
What is cost of living?
Cost of living (COL) is the amount of money necessary to pay for essential expenses to maintain a certain standard of living in a particular place. Essential expenses include things like housing, groceries, utilities, health care, transportation, clothing, and education.
The COL varies widely from place to place. You can use an online COL calculator to compare two places. For example, a single person with no children living in New Orleans and earning $50,000 would need to make 28% more, $63,924, to have the same standard of living in New York City.
In 2022, we’ve seen a dramatic increase in the cost of living compared to recent years past. Essentials like groceries and gas have shot up in price, meaning we have to spend more money to maintain the same standard of living we’ve had in previous years.
Cost of living and inflation
COL measures the amount of money you spend to maintain your lifestyle, while inflation measures how the prices of the goods and services you spend money on to maintain that lifestyle change.
When inflation is positive or above 0.0%, it means that prices have gone up for goods and services.
Cost of living increase for 2022
In 1973, legislation was enacted to provide a cost of living adjustment (COLA) for those receiving Social Security and Supplemental Security Income (SSI) so that the benefits would keep pace with inflation. Beginning in 1975, Social Security began automatic yearly COLA increases, which are tied to the rise in the Consumer Price Index.
But in recent years prior to 2022, the inflation rate was relatively low, and so were the COLA increases. Over the past decade, the COLA increases have averaged just 1.7% per year; last year, it was just 1.3%.
But with such high inflation, how much did the cost of living increase in 2022? The COLA increase for this year was 5.9%, the biggest since 1983 when the increase was 7.4%. The increase is meant to help preserve the buying power of Social Security benefits.
What does the increase look like? The average Social Security payment for a retiree will increase by about $92 per month to $1,657. The 2021 increase added only about $20 to the monthly benefit payment, so the 2022 increase is significant.
Possible cost of living increase for 2023
Each October, the Social Security Administration (SSA) announces the annual COLA increase for the following year. The increase begins each January. The COLA increase depends on changes in consumer prices through the end of each September, so while it’s too early to predict the increase, experts believe it will be somewhere between 8% and 10%, which would be the largest increase since 1981, when the COLA was 11.2%.
A 9% COLA increase would boost the average Social Security retirement benefit by around $150 per month in 2023.
