Reports from AARP, The Social Security Trustees report, and rumors ‘round the mill are projecting a small cost-of-living adjustment (COLA) for Social Security benefits in the coming year. In 2016 Social Security Beneficiaries missed out on an increase because of the decrease in the inflation rate. Many senior advocacy groups are attempting to change the current inflation-adjustment formula to one that would, more accurately take into account the spending habits of seniors.
Current legislation, based on the Social Security Act, provides an automatic increase in benefits when there is an increase in inflation, which is measured by the Consumer Price Index for Urban Wage Earners (CPI-W). There must be an increase in the third-quarter average CPI-W for the current year, over the third-quarter CPI-W in which the last year a COLA became effective; the last COLA became effective in 2014. 1
The National Committee to Preserve Social Security and Medicare, along with other groups, encourage a different inflation measure known as the Consumer Price Index for the Elderly (CPI-E), allowing for the factoring of seniors’ spending habits. Gasoline and technologies are two of the main contributors to the calculation of the CPI-W, both of which became less expensive over the last two year. Younger Americans tend to spend more money in these areas, whereas seniors spend more on things like housing and medical expenses. Had the government used the Consumer Price Index geared toward the elderly, there would have been a 0.6% benefit increase in 2016.2
While the percentage seems small, the benefit over time can be significant. A beneficiary who retired last year with a monthly benefit amount of $1,200 would receive about $20,300 more in retirement income over a 25-year retirement. The 2017 increase is projected to be 0.2%, which would raise the average Social Security retirement benefit of $1,341 per month by approximately $2.07. Making this the largest discrepancy between the CPI-W and the CPI-E on record, due primarily to a spike in health care costs and increases in housing expenses.3
Danielle Fisher-Arsenault, CLTC, NSSA
Medicare Navigator
Notes:
1.Mary Beth Franklin, investmentnews.com,
2. Retirement 2.0 M.B. Franklin
3.Jessie Gibbons, The Senior Citizens League
