Social Security Forecast: 1.8%-2% COLA

Social Security Forecast: 1.8%-2% COLA

Social Security recipients can expect a cost–of–living adjustment (COLA) of about 1.8%-2% starting in January, according to a new TSCL estimate. That continues a trend of extremely low COLA growth over the past five years. Beneficiaries received an increase of just 0.3% this year, and zero in 2016. In fact, since 2012, COLAs have averaged 1%, even though typical retiree expenses rose more than two times faster.

TSCL’s annual study of the loss in buying power of Social Security benefits and survey of senior costs confirm this trend. In fact, Social Security beneficiaries have lost nearly one–third of their buying power since 2000. The study found that Social Security benefits experienced a particularly steep loss of buying power over the 12-month period ending January 7, 2017.

During that period, Social Security benefits lost 7% in buying power, from 23% in 2016 to 30% in 2017. This occurred as inflation began to climb, but people receiving Social Security received an annual cost-of-living adjustment (COLA) of just 0.3% for 2017. Housing and medical costs — particularly for prescription drug expenses — were among the most rapidly-rising spending categories over the past year.

Respondents to TSCL’s annual senior survey, conducted from January through March of this year, confirm that monthly household expenses made steep increases over the past year. The majority, 67%, indicated their monthly expenses went up by more than $79. With Social Security benefits averaging $1,320 per month, that’s an unsustainable level of rising spending when there’s just a 0.3% benefit increase to match.

A major cause of the gap between the COLA and the real costs experienced by older Americans is the consumer price index (CPI) that the government uses to determine the annual boost. The COLA is determined by the growth in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Younger working adults spend a much smaller portion of their income on medical costs than do older people, and spend more on transportation and gasoline — spending categories that have gone down dramatically in recent years. This tends to understate the inflation experienced by the majority of people receiving Social Security who spend more on medical costs, which are growing several times faster than overall inflation, and less on transportation and gasoline.

TSCL strongly supports switching to a better choice of CPI for calculating the COLA — the Consumer Price Index for the Elderly (CPI-E). The CPI-E gives greater weight to healthcare and housing, the two categories that form a bigger share of spending for older households. The CPI-E would have paid a COLA of 0.6% in 2016 instead of zero, and 1.5% this year instead of 0.3%.

The Social Security Administration will announce the annual COLA on October 13th.