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I’m sure you’re already aware of how much more expensive things are today. Inflation, as measured by the Consumer Price Index, had its largest print in 30 years at +5.4% two months ago. In the Fall of each calendar year, the Social Security Administration (SSA) announces the cost-of-living adjustment (COLA) for the next year. For 2022, Social Security recipients may receive the largest COLA increase in 40 years. What about people who are not receiving benefits yet? Do they benefit from these COLA increases? Yes, current workers also receive COLA benefits through a process called indexing. While Social Security recipients receive COLA benefits tied to the Consumer Price Index (CPI), workers see their wages indexed to bring that year’s earnings in line with current wages.

For example, let’s say Bob has earned the maximum taxable Social Security wage base since 1973. The maximum taxable wage base in 1973 was $10,800. SSA indexes 1973’s wage base of $10,800 to convert it into 2021 dollars, or $69,250. In 1974, $12,000 was the maximum taxable wage base so that indexed amount is $70,644. The 1975 wage base of $15,300 is converted to $72,125, and so on. Each successive year’s earnings are indexed in such a way to put past earnings in today’s dollars for the formula that calculates benefits. By the way, you can see every penny you’ve ever earned and your benefits by registering at www.ss.gov. Always check your statement each year against your actual earnings because, sometimes, the SSA has made mistakes.

After each year of are earnings are indexed, the highest 35 years are identified. If Bob only worked 33 years, SSA averages in two zeros into the formula.

This means every year when you look at your SSA earnings statement, the numbers you see will change because of: (1) Your earnings record improves, (2) The indexing factor that goes into each year’s calculation. COLA adjustments affect current workers, not just current recipients, as the COLA raises the primary insurance amount (PIA). Workers receive COLAs based on the index of the year they were born while retirees’ COLA is based on the Consumer Price Index (CPI).

Matt Montgomery has 39 years of experience as a financial advisor. Securities offered through Royal Alliance Associates, Inc. Member FINRA, SIPC. Advisory services offered through Matt Montgomery, a Registered Investment Advisor not affiliated with Royal Alliance Associates, Inc., 1504 East Rusk, Jacksonville, Texas, 903-586-3494, Mutual funds and exchange-traded funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money. *An Index is a portfolio of specific securities (common examples are S&P, DJIA, NASDAQ), the performance of which is used as a benchmark in judging the relative performance of certain asset classes. Indexes are un-managed portfolios and investors cannot invest directly in an index. Past performance is not indicative of future results.

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