The past two years have seen historic Cost-of-Living Adjustments for Social Security recipients. The increases of 5.9% in 2022 and 8.7% in 2023 were the highest they’d been in 40 years because of rampant inflation. But unless things change by October, the COLA for 2024 will be substantially lower. According to the Bureau of Labor Statistics’ May 2023 report, inflation through the first five months of the year is running at an annual rate of 4.9%, and COLAs are based on the inflation rate.

The Senior Citizens League (TSCL) predicts the 2024 COLA will be even lower, in the neighborhood of 3.1%. TSCL acknowledges that inflation is lower this year, but the advisory group says a lower inflation rate doesn’t mean prices are coming down and the organization contends that COLAs are not giving seniors enough to truly stay even with inflation.

Automatic Social Security Cost-of-Living Adjustments have been in effect since January 1, 1975. The COLAs are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and are set every year in October to take effect in January of the following year.

That’s the first issue. By the time the Cost-of-Living Adjustment (COLA) takes effect, there have been three more months of additional inflation, so seniors’ purchasing power has gone down by the time the new COLA, based on the previous year’s inflation rate, takes effect.

Then, there’s issue number two. When Congress first adopted automatic inflation adjustments for Social Security benefits, the Bureau of Labor Statistics (BLS) only published the CPI-W , which tracks the prices paid by urban wage and clerical workers, reflecting the purchasing behavior of about 3 in 10 U.S. individuals. Today BLS has multiple indices such as the Consumer Price Index for all Urban Workers (CPI-U), the chained Consumer Price Index, the Consumer Price Index for the Elderly, etc.

There is an argument out there that the way Social Security COLAs are calculated is a problem for senior citizens because it’s based on a consumer price index for workers which doesn’t always reflect the way older people spend their money, for example, they’re increased use of and spending on healthcare.

Research by TSCL shows that Social Security benefits have lost more than 30% of their purchasing power since 2000 primarily because COLAs are too low and health care costs are out of control. The Senior Citizens League claims that the CPI-W underestimates inflation experienced by Social Security recipients because it underweights healthcare and housing costs for seniors. TSCL wants Congress to adopt legislation that would base the COLA on the Consumer Price Index for the Elderly (CPI-E).

Inflation listed by the CPI-E is usually two-tenths of a percentage point higher than the CPI-W. That’s important because COLAs compound significantly over time. Calculations by TSCL show that a senior citizen who filed for Social Security benefits 30 years ago would have received almost $14,000 more if the COLAs had been based on the CPI-E.

According to a TSCL spokesman, “Retirees would need an extra $516.70 per month ($6,200 in 2023) to maintain the same level of buying power that existed in 2000. This study confirms that the prices older consumers are paying are not growing as fast as a year ago, but many prices on key items through February 2023 remain stubbornly high.”

In particular, the Senior Citizens League points to the prices of food, electricity, rental housing, repair and maintenance costs of motor vehicles, and dental care.

Changing the way Social Security COLAs are calculated can only be done by an act of Congress. That’s scary. Besides the issue of fair COLAs for senior citizens, Congress has been aware for more than four decades that there’s been a problem with the funding of Social Security and that august body has stuck its collective head in the sand and done nothing to solve the problem. The latest report from the Social Security Trustees says the Social Security Trust fund will be empty by 2034 and Social Security will have to reduce Social Security payouts by 20% of what has been promised.

Will Congress tackle the double-edged sword of Social Security funding and a more equitable COLA calculation? If so, it will most likely be a knee-jerk reaction at the 11th hour rather than a well-thought-out plan to permanently fix the problem.

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