Social Security’s COLA: Why It’s Not Working Well for Seniors

The 1.3% cost of living adjustment retirees will see in their January 2021 benefit payment is a good thing, but not an especially good thing. It’s appreciated, yes, but it also triggers the long-standing and growing concerns about COLA’s inability to keep benefits from losing ground to inflation. The Motley Fool’s Maurie Backman, in a post  on, frames this concern with the statement that “the coming year’s COLA will amount to less than half the increase seniors will face on their healthcare bills alone.” Read her post here…

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 medical expenses lead the way as a cost category that disproportionately affects Senior households, it’s easy to see that a one-size-fits-all approach has a tendency to negatively affect Senior households.

As Ms. Backman’s article points out, the disconnect between COLA’s current process and the economic realities facing Seniors is causing many eyes to turn to the use of a revised measurement, CPI-E, where “E” stands for elderly.  Under CPI-E, spending areas more common to Seniors would be given more weight. 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 while solving the Social Security solvency problem.

Whether the 117th Congress, when it convenes in early January 2021, will take up the plight of Social Security’s COLA process, or the overall solvency issue the program is facing, as a priority is anybody’s guess at this point.

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