This week, the Social Security Administration announced that the annual Social Security cost-of-living adjustment for 2022 will be 5.9%. This is the largest annual increase in 40 years in regards to benefits payments.
Previously, COLAs have been modest in comparison, averaging a 1.65% increase annually over the past decade.
“Today’s announcement of a 5.9 percent COLA increase, the largest increase in four decades, is crucial for Social Security beneficiaries and their families as they try to keep up with rising costs,” AARP Chief Executive Officer Jo Ann Jenkins said in a statement. “The guaranteed benefits provided by Social Security and the COLA increase are more crucial than ever as millions of Americans continue to face the health and economic impacts of the pandemic. Social Security is the largest source of retirement income for most Americans and provides nearly all income (90% or more) for 1 in 4 seniors.”
Now you may be wondering, just exactly how are Social Security cost-of-living increases calculated, and what does this mean for enrollees’ of CSRS and FERS?
Social Security COLAs are determined by the annual change in the third quarter consumer price index for workers.
This means that for the federal government’s Civil Service Retirement System, who also happen to calculate annual annuity increases on that same basis, CSRS enrollees will see a 5.9% increase to their annuity payments next year.
However, former federal employees who are enrolled in the newer Federal Employees Retirement System (FERS), will only receive a 4.9% increase to their annuities.
According to Government Executive, each year, if CSRS sees an increase of under 2%, FERS retirees receive the full COLA. If the adjustment is between 2% and 3%, FERS enrollees only receive a 2% increase. And if the CSRS COLA is 3% or more, as it is next year, FERS retirees receive 1 percentage point less.
The imbalance and inequality of FERS and CSRS retirees has revitalized calls from federal employee groups and lawmakers to change policy to enable all retirees to receive the same annuity increase.
“Coming after years of low or no adjustments, this 5.9% COLA provides a buffer for seniors against recent inflation,” National president of the National Active and Retired Federal Employees Association, Ken Thomas said. “But for a significant number of federal retirees, the news is not quite as good: the January 2022 COLA will be 4.9% for those who retired under the Federal Employees Retirement System . . . This inequitable policy, enacted in the 1980s with the creation of FERS, fails to fully protect the earned value of FERS annuities, which decrease in value year after year—exactly what COLAs are intended to prevent.”
Earlier this year, Rep. Gerry Connolly, D-Va., introduced the Equal COLA Act (H.R. 304), which would seamlessly link both CSRS and FERS cost-of-living adjustments to the CPI-W. During his campaign, President Biden vowed he would push for cost-of-living adjustments to be based on the more generous consumer price index for the elderly. He has yet to act on that promise since assuming office.