The Dark Side of A Big Cost-of-Living Adjustment - Reverse Mortgage Daily

The media airwaves have been all over the potential for a relatively substantial bump in next year’s Social Security cost-of-living adjustment (COLA), with many projections of an increase north of 6%. Of course, this is a welcome turn of events for seniors who have seen an average adjustment of 1.7% calculated over the past decade, down from 2.4% the previous decade. An adjustment of this size would go a long way toward helping those dependent on their monthly benefits to manage living expenses.

But, is it all good news? A post on Reverse Mortgage Daily by Chris Clow suggests that the healthy COLA increase, while certainly helpful to retirees and those dependent on Social Security benefits, could obscure the fact that the upward trend signifies something potentially catastrophic for seniors…inflation. As Clow points out, the growth in benefits is actually weakened by related increases in areas like Medicare premium increases and benefits taxation. In fact, Clow observes that “…the additional cash in seniors’ pockets from the bump is ultimately being undermined by other rising costs that threaten retirement stability.” Check out Clow’s Reverse Mortgage Daily post here…

The COLA process embedded in Social Security is an area that needs scrutiny. As we reported in an earlier post on this site, “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.”

Our earlier post also cited the Association of Mature American Citizens(AMAC) proposal advanced in its Social Security Guarantee for a tiered approach in which annual adjustments are certain and are tied to household earnings in a structure that guarantees annual benefits for all. 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.

No matter what happens with Social Security reform in the 117th Congress, rest assured that AMAC intends to continue to advocate for improvement of the COLA process, along with overall modernization of this critical Senior benefits program.

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