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With Inflation Pushing Up the COLA on Social Security, Investing Where Seniors Spend Could Pay Off!
Retirees are likely to get a cost of living (COLA) increase greater than the last three years combined come January 2022. This will add up to an enormous amount of money. Many seniors have pent-up needs, after all, they’ve been tightening their belts as interest rates were pushed to near zero. An inflation report last week (Aug. 11) released by the Bureau of Labor Statistics is the first of three which decides how much additional cash they’ll have to spend. It’s looking good for those over 62.
COLA Math
According to the Social Security (SSA) website, the basis for increasing Social Security payments is the change in inflation measured by CPI-W for the months of July, August, and September. These months are averaged for the current year and that average is the effective COLA beginning in January of the following year.
Source: Bureau of Labor Statistics CPI Report, Released August 11, 2021
On page 4 of the BLS report released last Wednesday, we can see that for the month of July, the first month that is weighted in the formula, the basket of goods measured has increased by 6%. If CPI-W drops to 0% for August and September, recipients will still get a 2% increase. This is already higher than last year (1.3%) and the year before (1.6%). Estimates are that August and September won’t see price increases slow, this has led to a range of forecasts for the Social Security COLA to be close to 6%. In June CPI-W increased by 6.1%. If the trend holds, a near 6% increase would add to more than the last three COLA adjustments combined.
The SSA website shows that for the last three years recipients received 2.8% in 2018, 1.6% in 2019, and 1.3% in 2020. The increases, even with compounding, only multiplies out to 5.80%.
The average social security recipient receives $1,553.68 per month. A 6% increase for this group would be $93 additional monthly. On the high end, the maximum paid is $3,895 which would increase by $233.70. Neither of these is enough to lease a new Tesla, so what will Seniors be buying? The amount of money isn’t as small as it looks. The number of Americans collecting Social Security payments is 61.5 million. At an average increase of $93 per month, this will place an additional $68.6 billion into the economy next year, all primarily 62-years old and up.
Take-Away
The inflation that the economy has been experiencing, regardless of whether it is transitory or persistent, is likely to supply over 68 billion in additional cash to the hands of seniors next year. This is not an insignificant number. If there are specific demands among this group, for example, travel, new car, electronic updates, medical supplies, fitness, those sectors could do well. That is to suggest if there are commonalities among this demographic as to where money will be spent, investing in “gray” sectors may be worth exploring as we approach 2022.
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Managing Editor, Channelchek
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Sources:
https://www.ssa.gov/oact/STATS/cpiw.html
https://www.bls.gov/news.release/pdf/cpi.pdf
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