How Much Is the Social Security Cost of Living Increase for 2022?

For the approximately 65 million Americans who were slated to receive benefits from Social Security in 2022, the state of the Social Security Administration’s funding is an important concern. So, how much will the Social Security cost-of-living adjustment be in 2022?

For several years, analysts have warned that Social Security was expected to “run out” by 2035 (meaning a significant reduction in benefits, not that the funds would be cut down to zero). The expected cost of living increase or COLA (cost-of-living adjustment) is calculated based on the Consumer Price Index and is intended to help counteract inflation.

Here's how much COLA increased by in 2022.

Social Security is funded through a payroll tax, which means that employees and employers pay a set percentage. Then at retirement age, individuals who have been paying into the system can start taking benefits (payments) depending on their age and how much they have contributed throughout their career.

Most years, the benefits adjust to keep up with inflation rates (aiming to give recipients equivalent buying power as inflation rises). This adjustment, or COLA, started in 1975 and is based on the Consumer Price Index. In October of 2020, the Social Security Administration declared a 1.3 percent COLA (which takes effect the following year). The cost-of-living increase was 5.9 percent in 2022 and 8.7 percent in 2023.

Each year, inflation impacts the benefits paid out by Social Security since it directly affects how much benefits increase, if at all. The inflation rate over the past year has been about 5.4 percent, which might lead to higher Social Security benefits.

An issue with the cost-of-living increases and inflation is that Social Security is required to only invest its funds in U.S. Treasuries, which don’t keep pace with inflation.

Since the COLA for Social Security in 2022 was higher than 6.1 percent, it makes it the largest increase in Social Security payments since 1983, according to the Senior Citizens League.

A Congressional bill introduced in July, the Fair COLA for Seniors Act of 2021 proposes changing the measure used to calculate COLA. Instead of the Consumer Price Index for urban wage earners and clerical workers (CPI-W), it would use the CPI-E, based on pricing for the elderly to more accurately reflect retirees’ needs.

For several years now, experts on the Social Security system have been warning that the program won't be able to sustain itself forever. It’s largely a population problem—when you have more money being paid out than is being brought in through payroll taxes, the benefits can’t continue at the expected level.

As the number of retirees has increased along with life expectancies, the Social Security funds have been increasingly stressed.

The Old Age and Survivors Insurance (OASI) Trust Fund of Social Security is projected to be able to pay benefits on time and in the anticipated amounts until 2034. This fund, which pays benefits to retirees and survivors, will then have to reduce benefits to about 76 percent of the full benefits scheduled.

The COVID-19 pandemic and rising inflation rates could cause additional strain and move up the timeline of when Social Security is forced to reduce benefits.