COLA Watch, Part 2
Yesterday, we highlighted the projection that Social Security’s 2022 COLA could spike to a level between 400% and 500% higher than 2021’s 1.3% adjustment. Whether or not this actually happens, though, depends on the CPI-W numbers from third quarter 2021 compared to the same time period from 2020. In any event, it appears statistically likely that the 2022 adjustment should be substantially higher than the past decade’s 1.7% average.
While a larger COLA is good for seniors coping with steadily increasing prices, many have realized that the current calculation is somewhat flawed when it comes to measuring what seniors are up against in the marketplace. Specifically, the issue at hand is the manner in which Social Security’s annual adjustment is determined. The calculation uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a tool that measures changes in the pricing of consumer goods and services purchased by households. And therein lies the root of the problem…it’s a measurement process that does not sufficiently weigh the costs most important to seniors, since it gauges the spending patterns of a broad range of households without regard for household ages. Since housing and medical expenses lead the way as cost categories that disproportionately affect Senior households, it’s easy to see that a one-size-fits-all approach has a tendency to negatively affect Senior households.
In a forbes.com post, Contributor David Rae addresses this issue via discussion on the “Fair COLA for Seniors Act of 2021” legislation recently proposed by Representative John Garamendi (D-CA). As introduced, the bill would call for a change to a new senior-favorable measurement, CPI-E, where “E” stands for elderly. Under CPI-E, spending areas more common to Seniors would be given more weight. Quoting Rep Garamendi, Rae notes that “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.” For more on this legislation, check out Rae’s post here…
Aside from this, the Association of Mature American Citizens (AMAC) has proposed in its Social Security Guarantee a tiered approach in which annual adjustments are certain and are tied to household earnings in a structure that guarantees annual benefits for all, and is part of an overall approach to addressing the Social Security solvency problem. This approach would call for lower-income households to be guaranteed annual increases of up to 4%, while higher-income households would be capped at lower levels. The result would facilitate a needed redistribution of benefits to ensure that those who need the COLA increase the most, get it.
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