Inflation’s impact: How much is the 2022 COLA?

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What price increases have you noticed lately? Maybe to your grocery receipt, your heating bill or your medical expenses. Are you paying more for your home in recent years?

Rising inflation is unnerving many Americans, but these higher living expenses make people who depend on Social Security squirm as they try to stetch their monthly payments.

Advocates for older Americans say the raises over the years — even the bigger boost in 2022 — fail to keep up with rising costs, especially ballooning expenses that eat up most of older people’s budgets, including housing and health care.

The COLA for 2022 is 5.9%, the Social Security Administration recently announced, significantly higher than average annual increases of about 2.2% during the previous 20 years. The average Social Security benefit will increase to $1,657 per month, up by $92 from 2021.

But the Senior Citizens League says the amount may not even make up for price increases the government predicts for next year: 2.5% to 5% for food, up to 25% for natural gas heating this winter, and 5% for Medicare prescription coverage.

“It appears that inflation is not done with us yet, and the buying power of Social Security benefits may continue to erode into 2022,” says Mary Johnson, a policy analyst with the organization.

And Medicare Part B premiums for doctors visits, lab tests and other services are set to increase about $22 a month, or 14.5%, the biggest jump in the insurance program’s history.

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If your Social Security isn’t enough to live on

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You can’t control inflation or the cost-of-living adjustment, but you can take measures to protect yourself if the buying power of your retirement income fades.

If you haven’t retired, focus on multiplying your nest egg:

  • Save more aggressively. Max out your employer-matching 401(k). Did you know that 17 million Americans miss out on free money they’re owed from their employers?
  • If you’re healthy, wait until you turn 70 to claim your Social Security benefits.
  • If you’re under 40, pretend Social Security doesn’t exist. There’s no guaranteeing how long it will last.

If you’re retired, you could make a dent in any shortage left by an inadequate COLA:

  • Rework your budget. Don’t assume that the Social Security increase will be enough to keep spending the way you do now.
  • Consider picking up a part-time job if you’re able. Many desirable jobs are open with today’s labor shortage. If health conditions limit your options, freelancing from home could boost your income.
  • Speaking of home, consider downsizing or relocating. Pile the proceeds from a house sale into your retirement fund. If you rent, downsizing shaves one of your biggest expenses.
  • If you live in a state that taxes Social Security benefits, you could move to a more tax-friendly location.

Win the battle against inflation

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The 2022 Social Security COLA won’t cut it for many Americans, but several methods can fortify your finances at any point in life:

  • Attack your debt. Credit cards acted as a lifeline for many people during the pandemic, but holding high-interest debts weighs you down. Consolidating your balances into a single loan can help you pay off what you owe faster.
  • Refinance your home. If you’re still paying a mortgage, it's a good time to refinance to cut your monthly payment. Mortgage rates are hovering near modern lows, and the shorter-term interest rates — about 2.4% for 15-year loans, for example — are especially enticing for people who want to clear that debt for retirement.
  • Save when you shop. Stop overpaying for online purchases. Several handy browser extensions hunt for lower prices and automatically apply promo codes during checkout.

Lower-risk investments also may help tamp down the impact of rising costs:

  • Investigate an investment in farming. Buying part of a farmland parcel is a way some investors hedge against inflation. After all, the population is growing, and people always need food. New platforms help investors tap into this often-overlooked asset.
  • Put your nickels and dimes to work. Whatever stage of life you’re in, you can try to earn money from the stock market by thinking small. A popular app lets you build a diversified portfolio when you invest your "spare change" from day-to-day purchases.

Fine art as an investment

Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.

That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.

Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.

And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.

On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.

Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.

Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultrarich. But with a new investing platform, you can invest in iconic artworks just like Jeff Bezos and Bill Gates do.

About the Author

Mitchell Glass

Mitchell Glass

Freelance Contributor

Mitchell is a freelance contributor to MoneyWise.com.

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