Social Security’s 8.7% cost-of-living adjustment (COLA)—the biggest increase in decades—offers retirees a priceless benefit in the form of inflation-protected income for life, maintains Jeff Sommer in an article for The New York Times. While investors can hedge against inflation through I bonds (issued by the Treasury Department and paying out 9.62% interest right now), Social Security gives people a stable, monthly income that rises automatically with inflation. This COLA is the biggest increase since 1981, when it went up 11.2%, but the automatic increases date back to 1975. Over the last decade, COLA adjustments have been under 3%, except last year’s, which was 5.9%. These adjustments generally fly under the radar, but as inflation surges, it’s welcome news to the 70 million beneficiaries who receive Social Security. And if inflation remains persistent, there will be another substantial adjustment in 2023. Even those who are years away from retirement will be affected by inflation adjustments, as they will increase the benefits that future retirees will eventually earn. Of course, Congress must take action to prevent the Social Security Trust Funds running out of money in 2035. But tax revenues that pour into the Social Security system would still pay out roughly 80% of expected benefits. It’s likely that Congress would at least take action to protect those already receiving benefits, Charles D. Ellis, author of Falling Short: The Coming Retirement Crisis & What To Do About It, told The Times. Everyone else, however, should take the time to understand how valuable Social Security is and speak up to their representatives about the importance of preserving it for future generations.
While Social Security is unique, technically it’s a type of annuity, which are sold by insurance companies and pay a yearly income for the remainder of your life as well as to your surviving dependents. While financial advisors often recommend them, annuities aren’t all that popular, and they don’t offer COLA like Social Security does. Even if a private company offered an annuity that offered inflation adjustments, it couldn’t compare to the U.S. government—an entity with the world’s biggest economy and a powerful military behind it. And buying an annuity on the open market that offers the same income as Social Security would be worth at least $300,000—far outside the means of the average household. Meanwhile, if Social Security were an annuity, it would be worth over $665,000 and even as much as $909,000—and that’s without factoring in the most recent COLA, the article contends.
But even without putting a monetary value on Social Security, the benefits are priceless, and must be preserved, Sommer stresses. Investing wisely and working as long as you can are all good steps to take, but to pay Social Security taxes your whole working life and then not be able to collect isn’t something that anyone, no matter what political class they belong to, wants.