Increases in Social Security often fail for the elderly; Proponents want to change the way cost of living adjustments are calculated
It’s no secret that inflation has been skyrocketing for about a year. The cost of everything from groceries to gas to clothing these days is higher than it has been in years, and many people are struggling to keep up.
This extends to older people, especially those who derive most of their income from Social Security. This year, Social Security recipients received a 5.9% cost-of-living adjustment, or COLA, in January. The purpose of this increase was to help them maintain their purchasing power in the face of galloping inflation.
But based on recent inflation levels, that 5.9% increase is already very short. And it’s not surprising.
Social Security seniors have been steadily losing their purchasing power for years, despite the COLAs they receive. And a big reason for that comes down to how COLAs are calculated.
A more suitable COLA calculation method
Social Security COLAs are based on data from the third quarter of the Consumer Price Index for Urban and Clerical Workers, or CPI-W. Because we’re only days away from the third quarter of the current year, we don’t yet have enough data to determine what the 2023 Social Security COLA will look like. But experts are already saying that could be huge.
In fact, the nonpartisan Senior Citizens League recently estimated that next year’s COLA could be as high as 8.6%, making it the biggest increase for beneficiaries in decades. (By the way, other estimates are even higher.) But will an 8.6% COLA be enough in 2023? Chances are it won’t, especially if inflation continues to soar.
Unfortunately, Social Security COLAs have a long history of failure to help seniors with the cost of living. But changing the way they’re calculated could help seniors better manage their finances.
In fact, a number of lawmakers are pushing to use a different measure than the CPI-W to calculate COLAs — the CPI-E, or Consumer Price Index for the Elderly. The main difference is that the CPI-E would better capture costs more specific to seniors, as opposed to the CPI-W, which relies heavily on measures like gasoline costs that may not represent not be such a large expense for retirees who are not. does not work.
To be clear, the switch to CPI-E will not automatically guarantee a larger COLA for 2023 or any year to come. But what is that should doing is to help ensure that the purchasing power of Social Security recipients does not erode over time.
If the CPI-E had been used to calculate this year’s COLA, for example, it would have amounted to 4.8% instead of the 5.9% that seniors received. But the CPI-E has also, historically speaking, increased faster than the CPI-W. And making that change could ultimately translate to more generous COLAs and better purchasing power for seniors, even though there are years here and there where the CPI-E lags the ‘IPC-W.
Of course, at the moment, the switch to IPC-E is only a proposal. But it is the one that is gaining ground. It will be interesting to see if lawmakers manage to move this change forward.