By Mary Johnson, editor
Social Security’s annual cost-of-living adjustment (COLA) is provided to help people maintain the buying power of their Social Security benefits as prices go up. Since the COLA was only 0.3% this year, and zero the year before, the consumer price index, (as measured by our government at least) showed that prices went down or stayed the same from one year to the next.
Some policy “experts” say that low inflation is “great news” for retirees because, when prices are lower, retirees won’t have to spend as much of their retirement savings. But, in the real world, does this really happen?
According to the survey responses of thousands of people age 60 and older, collected by TSCL over the past four years, the answer is NO. Real-world household spending in retirement tends to climb most years, and often by a substantial amount, even during years when most prices have dropped.
Thirty-seven percent of people participating in TSCL’s 2017 Senior Survey reported that their household expenses rose by more than $119 per month in 2016, yet the annual cost-of-living adjustment (COLA) increased benefits by only $4.00-$5.00 per month for someone with average benefits. Few beneficiaries actually saw any increase in benefits at all, though, because rising Medicare Part B premiums took the entire COLA.
In fact, since 2014 TSCL’s surveys have found that about 9 out of 10 people receiving Social Security benefits report that their household spending rose by at least $39 per month during the prior year. But that’s just the tip of the iceberg. In every year since 2014, the biggest percentage of people participating in TSCL annual Senior Surveys reported that their household spending jumped by more than $119 per month over the past 12 months.
One factor causing the discrepancy is the consumer price index (CPI) that the government uses to determine the COLA. One would think that the CPI used to calculate COLAs for retirees would be based on the spending patterns of older people, but it’s not. The COLA is determined by the growth in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) — an index that measures the spending patterns of younger working adults.
Younger workers spend their money differently than older folks. Unlike seniors, younger people spend a far smaller portion of their income on medical costs, which is the fastest growing category of the CPI in most years. On the other hand, younger working adults spend more on transportation and gasoline, categories that have gone down dramatically in recent years. This tends to understate the inflation experienced by the majority of people receiving Social Security, and the COLA thus underpays you.
It comes as no surprise that 78% of those participating in TSCL’s 2017 Senior Survey strongly support a legislative proposal that would modestly boost monthly Social Security benefits. In addition, the survey found that 86% support boosting the COLA by tying the annual boost to the Consumer Price Index for the Elderly (CPI-E), which would provide a modestly higher COLA in most years.
Speak up and let your elected lawmakers know how rising costs are affecting you. Send an email at www.SeniorsLeague.org or call toll free 1-844-455-0045.