By Mary Johnson, editor
Is inflation ever a good thing if it means getting a high cost-of-living adjustment (COLA)? The person asking me that question could be forgiven since that young adult had never experienced inflation this high in their lifetime. I regularly am consulted by younger journalists who are unfamiliar with Social Security benefits and help them develop their media stories.
The journalist who asked this question received a good swift NO! COLAs, no matter how high, don’t typically keep pace with inflation experienced by Social Security recipients. Higher COLAs are an indication that Social Security recipients have lost more buying power in the previous year. The COLA that’s paid is not based on the inflation that’s occurring today which in 2022 is even worse than 2021. Even with a 5.9% COLA this year — the highest in 4 decades — Social Security benefits are still falling woefully short of rising prices.
What are some of the reasons for this, and what can we do about them? There are several common ways that COLAs can fall short. Here are two of them that are having an outsized impact in 2022:
- The three months gap between when the COLA is calculated and when the COLA is paid. The Social Security COLA is calculated by determining the rate of increase or decrease in the average rate of inflation during the third quarter (July, August, and September) of the current year versus the previous year. But Social Security recipients must wait until January of the following year to receive the first boost in their Social Security check. By the time the 5.9% COLA for 2022 became payable in January, inflation was 7.8% — nearly one third higher than the actual COLA received! TSCL is working to get legislation introduced that could remedy this problem by boosting benefits by 2% to make up for the COLA shortfall, or Congress could enact a one-time emergency payment, such as a one-time $1,400 check for all Social Security recipients to offset the shortfall.
- Medical and prescription drug price increases are not fairly accounted for in the consumer price index (CPI) used to calculate the COLA. The CPI-W which is used to determine the COLA, does not account for the annual increase in Medicare Part B premiums or other out-of-pocket healthcare costs that older and disabled Social Security recipients must pay. The CPI-W is based on the spending patterns of younger working households under the age of 62. Younger consumers only spend an estimated 7.5% of their budgets on healthcare costs. Older adults 65 and up spend roughly two times that amount --- about 14%-16.3% --- on healthcare. TSCL supports tying the COLA to a consumer price measure that more fairly measures inflation experienced by older and disabled consumers. The Medicare Part B premium and out-of-pocket costs need to be tracked and more accurately weighted to reflect the portion of income that beneficiaries spend on those costs.
When the annual COLA falls short, that’s money that can’t be made up and it really adds up over time. Those who have been retired the longest, have lost the most buying power in their Social Security benefits — 40% since 2000.
What can you do to help address these efforts to improve Social Security benefits? Be sure to get prepared for fall elections. Do you know where your candidates for federal office stand of this issue? That’s not always easy to find out. Visit the websites. See what the candidate is discussing as priority issues, and what has not been discussed, or discussed in detail. Send email with questions on positions and talk with local party workers to learn what they know about the candidates record on the issues.
