Why the Current COLA Formula is Hurting Retirees
Consumer prices continue to climb. The annual inflation rate in May was 4.2 percent. That’s the highest it’s been in three years. To help keep up with rising costs, the Social Security Administration allows for an annual cost-of-living adjustment (COLA). The problem, according to a Legis1 article, is that the “index used to calculate the annual inflation adjustment for Social Security benefits was designed to reflect the spending habits of working-age urban wage earners, not retirees.”
The article explains that under the Social Security Act, the COLA is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The formula compares the average CPI-W for the third quarter of the current year against the highest third-quarter average ever recorded. It states that if “the current year’s figure is higher, a COLA is triggered. If not, benefits are held flat.” It’s important to note that benefits cannot be reduced, even if prices fall.
Retiree Disservice
The article then goes on to question whether the CPI-W is the best tool for measuring inflation as it affects Social Security beneficiaries. Retirees spend proportionally more on healthcare and housing than working-age wage earners. It suggests that an alternative index, the Consumer Price Index for the Elderly (CPI-E), would be a better option because it “captures price changes affecting those 62 and older and has generally been found to grow slightly faster than the CPI-W. That difference, compounded over years, could mean meaningfully higher benefits for seniors.”
The Seniors Trust is in total agreement. We believe the Consumer Price Index for the Elderly (CPI-E) should be used to calculate the COLA instead of the Consumer Price Index for Wage Earners (CPI-W). This index shows how inflation actually impacts the typical retiree based on seniors’ spending habits.
A Better Option
We are calling on Congress to enact the Social Security Expansion Act. It calls for adopting the CPI-E as the COLA calculator, better ensuring that Social Security benefits keep pace with inflation.
Additionally, this landmark piece of legislation would also extend the solvency of the Social Security trust fund through 2096, expand Social Security benefits by about $200 a month for current and new beneficiaries, require millionaires and billionaires to pay their fair share into Social Security by lifting the wage cap, and improve the Special Minimum Benefit for Social Security recipients which would help low-income workers stay out of poverty.
Is this something you can get on board with? Join us in urging lawmakers to enact the Social Security Expansion Act. You can show your support by signing our petition.
