2022 Cost of Living Adjustments: What to Expect?

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Inflation is making everything cost more. Will that be reflected in pay increases?

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Key points

• Inflation has been driving up living costs for months.
• Many workers are hoping their raises will account for that going into 2022.

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It's not a secret the cost of living has risen substantially this year thanks to rampant inflation. In October, the Consumer Price Index, which measures the cost of common goods, pointed to a 6.2% increase from the previous year. For context, the typical rate of inflation is usually closer to 3% a year.

In fact, companies that give out cost-of-living raises (as opposed to merit raises, which are based on performance) commonly boost workers' pay by about 3% year after year. But given recent inflation, that won't really cut it going into 2022.

The question is: Will companies pony up more money in the coming year? Or will workers effectively lose buying power?

Will 2022 pay raises disappoint?

When wages increase at a rate that's lower than the rate of inflation, it can put workers at a disadvantage. If someone's living costs rise $100 a month, but that same person only gets a monthly raise of $50, it can feel like a pay cut -- even though it technically isn't.

Now, we can't say with certainty what companies will do in light of recent inflation. But one thing we do know is that seniors on Social Security are getting their largest annual raise in decades due to recent inflation. Specifically, Social Security benefits are going up 5.9% in 2022, and the main reason is that cost-of-living adjustments for those benefits are tied directly to movement in the Consumer Price Index.

Employers don't have to follow that index. But those that want to do right by their workers may offer up higher pay boosts to account for the fact that inflation has been downright wild.

What to do if you don't get a generous enough raise

If your company ends up sticking to the standard 3% raise, then it could put you at a big disadvantage -- especially if you're already living paycheck to paycheck without any money in savings. If your raise isn't up to par, the first thing you should do is ask your boss for a meeting and express your concerns. If your company's policy is to give out raises that reflect the rising cost of living, then they should be aware of the recent rate of inflation and use that to guide their decision.

If you're unable to persuade your employer to do better on the raise front, you may need to create your own pay bump by picking up a side hustle. If you're willing to work some evenings or weekends, you can score a higher paycheck and buy yourself the ability to cover your bills without stress (or at least with less of it).

These days, the gig economy is loaded with opportunities. Even if you only have a few hours each week to devote to a side hustle, you can still pad your earnings nicely.

Hopefully companies will offer up higher raises to employees in 2022. But if that doesn't happen, it'll help to have a backup plan so you don't fall behind on your bills.

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