For the sixth consecutive year, Social Security beneficiaries will receive a cost-of-living adjustment (COLA) that's a near-record low. Benefits will rise in January by a meager 1.7% after a 1.5% increase in 2014. In fact, inflation has been growing so slowly that the annual increase has averaged only 1.4% per year since 2010 — less than half the 3 percent average during the prior decade. In 2010 and 2011, benefits didn't increase at all, and a 1.7% increase next year won't pull up the five-year average.
Although the annual adjustment is provided to protect the buying power of Social Security payments, beneficiaries report a growing disparity between the amount of benefit boosts they receive and increasing costs. According to a recent national survey by TSCL, the majority of Social Security recipients said that their benefits rose by less than $19 in 2014, yet their monthly expenses rose by more than $119. A 1.7% increase would only boost average Social Security benefits by about $20 in January.
Low inflation is often blamed on the economic recession and slow recovery, but there are other factors. Unbeknownst to most of the public, the federal government has quietly made numerous changes to the methodology used for the nation's inflation measurement — the consumer price index (CPI). Politicians claim the changes make the CPI more accurate, but virtually all of the changes since the 1980's have lowered the measured rate of inflation and reduced the growth of Social Security benefits.
When the average person measures cost changes, one compares the change in the cost of a specific item like a gallon of home heating oil over a specific time frame. For example, the national average cost of home heating oil was $1.15 per gallon in the first week of January 2000. In the first week in January, 2013 it had increased to $4.00 per gallon — an increase of $2.85. That's a total increase of 257% over 13 years.
In real terms, if a household heating oil tank holds 400 gallons, a fill up in 2000 cost $460. That was slightly more than half the average monthly Social Security benefit of $816 in 2000. The householder still had $356 left to buy groceries and pay for prescriptions. In 2013, the same fill-up cost $1,600 — almost 40 percent more than the average monthly benefit of $1,147. The householder had to take $453 from savings, a line of credit, or another income source to cover the balance of the fill-up.
The record low COLAs in recent years that haven't stopped politicians in Washington from proposing more reductions by using the more slowly- growing "chained" CPI, to calculate COLAs. According to TSCL's online "Chained COLA" calculator, over the first 10 years alone a $1,000 per month benefit would lose about $1,555 in growth under the proposal.
So far activists, including TSCL's members and supporters, have managed to keep Capitol Hill lawmakers wary of making major changes. But the issue isn't going away any time soon. The nation will once again reach the federal debt limit by the end of next year, and at the same time, lawmakers will be confronted with the looming insolvency of the Social Security Disability program. Deficit reduction battles are likely to dominate the Congressional agenda once again, and cutting COLAs remains the target of major deficit reduction plans.
There's power in numbers. If you're concerned about your Social Security benefits, share this information with others and encourage them to visit the TSCL website to learn more. To learn how much COLA cuts might cost you, try the TSCL Chained COLA calculator.