In 1767, a European man named Joseph Priestly invented “soda” when he figured out how to infuse water with carbon dioxide, creating the first carbonated beverage – his so-called “soda water”. Although the beverage has been enjoyed worldwide since then, it took almost 200 years for American retirees to be served a COLA. Of course, we’re not talking about soda. Rather, we are referring to the annual Social Security cost-of-living adjustment (COLA).

History Lesson

To understand how COLA came about, let’s look back at the history of Social Security. When the program first started, the amount of your first benefit check was the amount you could expect to receive for life. A 1950 Amendment allowed Congress to legislate an increase in benefits and, going forward, benefits were increased only when Congress enacted special legislation for that purpose.

Skyrocketing inflation in the 1970’s was decimating the purchasing power of people living on fixed pensions and benefits. Something needed to be done. Congress enacted the COLA provision as part of the 1972 Social Security Amendments and President Richard Nixon signed it into law, authorizing a 20% cost-of-living allowance. The automatic annual COLAs (based on the annual increase in consumer prices) that we have today began in 1975. This was significant because it meant beneficiaries no longer had to wait for a special act of Congress to receive a benefit increase and no longer did inflation drain value from Social Security benefits.

Serving Size Varies

The first automatic Social Security COLA was 8% in 1975. According to AARP, the biggest bump came in 1980, when benefits rose 14.3%; the following year saw an 11.2% increase.

Most of the 21^st century has seen modest increases. The current COLA for 2021 was only 1.3%. Analysts believe retirees could see a 5-6% COLA increase for 2022 due to pandemic-related inflation. The actual COLA number will be released this fall.

Calls for a New COLA Formula

Currently, the Social Security COLA is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The thing is, retirees’ spending habits are way different than that of working people. A better option would be to switch to using the Consumer Price Index for the Elderly (CPI-E). It considers the unique spending habits of seniors, namely increased costs for medical care and housing.

This year’s inflation, including huge price increases at the grocery store and gas pump, are hitting America’s retirees especially hard. Living off of a fixed income and/or Social Security benefits has become a struggle for too many seniors. But it wouldn’t have to be if Congress would use a new formula to calculate COLA.

The Social Security Expansion Act calls for using the CPI-E for Social Security COLA calculations – and that’s one of the main reasons The Seniors Trust is pushing Congress to enact this act. In addition to instituting a fairer COLA, it also calls for increasing monthly benefits and strengthening the long-term solvency of the Social Security program which would also greatly benefit seniors.