Momentum continues to build for changing the tether for calculating Social Security’s annual cost of living adjustment (COLA) to an index that more accurately reflects how seniors actually spend their money.
The “Fair COLA for Seniors Act of 2021” introduced in the House of Representatives on July 1 by Rep. John Garamendi (D-CA) would require Social Security to use the experimental Consumer Price Index for the Elderly (CPI-E) instead of the Department of Labor’s Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to calculate the annual COLA, which supporters say would lead to a more equitable cost of living adjustment for seniors.
H.R. 4315 would increase benefits and ensure that cost of living adjustments in Social Security reflect what Garamendi said, in a press release, “were the real rising costs for seniors and disabled Americans.”
Garamendi was one of 23 lawmakers cosponsoring the bill. With the exception of Rep. Brian Fitzpatrick (R-PA), all of the sponsors are Democrats.
“Seniors and disabled citizens rely on Social Security benefits for a large portion of their income, and it’s about time for Social Security benefits to reflect their lifestyles,” Garamendi said. “Using a COLA that actually reflects how retirees spend their money—especially in health care—is a no-brainer that will increase benefits and make Social Security work better for the people it serves.”
Garamendi also introduced this bill back in 2019 (H.R. 1553) along with 35 other Democrats and three Republicans, but it did not receive a vote. As of July 6, the full text of the new bill (H.R. 4315) has not been received by the Library of Congress. It was referred to the Committee on Ways and Means, and in addition to the Committees on Veterans’ Affairs, Oversight and Reform, and Armed Services.
The official 2022 COLA is scheduled to be released by the Social Security Administration (SSA) in mid-October, after calculating the percent change between average prices in the third quarter of 2021 (ending on Sept. 30) with the third quarter of the previous year.
Should the bill advance and become law this year, it is not yet clear if changing the tether to the CPI-E would take effect this year or next.
Change might not be good for seniors in 2021
Over the past 6 years, the CPI-E’s hypothetical COLA increase combined to add up to 10.1 percentage points compared to the CPI-W’s actual 8.0 points. But Social Security and Medicare policy analyst Mary Johnson of The Senior Citizens League notes that while the CPI-E tends to be higher than the CPI-W in most years, it’s not always the case—and might not be the case in 2021.
“The big difference between the two is the weighting for gasoline,” Johnson said. “In years in which gasoline prices spike, such as in 2021, then the CPI-W which is weighted more heavily for gasoline and transportation costs would yield the higher COLA. That’s likely to be the case this year.”
Still, over time Johnson says the CPI-E would yield higher COLAs and more lifetime Social Security income. “The benefit in old age (after 20 years in retirement) would be higher because the COLA is a lot like interest, and compounds over time,” Johnson said.
Inflation this year is leading to early predictions of the highest Social Security COLA increase since 2009. In May, TSCL predicted a 4.7% increase, which would be more than three times bigger than 2021’s 1.3% increase. The next estimate from TSCL in mid-July will likely predict an even bigger increase based on updated data from the U.S. Bureau of Labor Statistics’ latest Consumer Price Index.
President Joe Biden, TSCL and many lawmakers support switching the inflationary tether to the CPI-E, the experimental index that specifically tracks the spending of households with persons aged 62 and over. TSCL research has shown doing so would result in slightly bigger (about .25%) annual COLAs than under the CPI-W.
“That index [CPI-W] does not accurately reflect the spending patterns of retired households. And retirees tend to spend more on healthcare and housing costs and less on transportation costs,” Johnson said.
Surveys by TSCL show overwhelming support for legislation that would tie the COLA to the CPI-E. “When we surveyed on specific methods to boost benefits this year, 61% of survey participants support tying the COLA to the CPI-E. Only 3% of survey participants did not support the proposal,” Johnson said.
The 2021 Social Security COLA increase of 1.3% isn’t keeping up with real-world cost of living increases, according to another survey from The Senior Citizens League. The survey of retirees found that 63% say the 1.3% COLA raised their net monthly Social Security benefit by less than $15 after the deduction for the Medicare Part B premium.
The 1.3% increase bumped the average monthly benefit for all retired workers just $20, from $1,523 in 2020 to $1,543 in 2021. That equates to about an extra $240 per year.
Meanwhile, 65% of survey respondents report their monthly household expenses in 2020 rose by more than $80, including 40% who reported their expenses are up by $120 per month or more.
SEE ALSO:
- Social Security COLA Estimates Rise Sharply on Inflation News
- 2022 Social Security COLA on Pace for Biggest Increase Since 2009
- Retirees Unhappy With 2021 Social Security COLA ‘Boost’
- Biden Backs This Change for Social Security COLA
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
