Representative John Garamendi (D-CA) recently introduced a new bill that could change how the Social Security cost-of-living adjustments are calculated. The bill titled “Fair COLA for Seniors Act of 2021” would require the Consumer Price Index for the Elderly (CPI-E) to calculate what could be described as a fair Social Security cost-of-living adjustment for the 69 million Americans receiving SSI benefits.
According to Garamendi, the Consumer Price Index for the Elderly grew at a rate of 3.1% compared to 2.9% for the standard Consumer Price Index from years 1982-2011. This may not seem like a big deal year over year. But over time, with compounding interest, the difference in Social Security benefits could be substantial. When you are trying to live on Social Security alone, as many retirees do, even a few extra dollars per month can really help you stay solvent.
Today, the Social Security COLA is based on the CPI-W, a consumer price index that reflects the increasing cost of goods for urban wage earners. The Social Security COLA has only passed 2% twice since 2010. Seniors are feeling the pinch in their budgets, as many expenses they incur are increasing faster than the CPI-W numbers would lead you to believe. Think health care, food, rent, gas, and long-term care.
Even without this bill, the 2022 Social Security COLA could be the biggest in years. The Senior Citizens League, a non-partisan senior group, has estimated the Social Security COLA could be around 6.1% based on consumer price index data from the Bureau of Labor Statistics through June. This is up from the 5.3% estimate is made based on the May inflation statistics.
“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,” Garamendi said in a statement. Inflation protection is one of the most valuable features of your Social Security benefits. Another being that it is guaranteed as long as you live.
Does Social Security Need to Change?
Changing Social Security has been a hot topic for decades. We know if no action is taken, the Social Security trust fund will run out of money within the next 10-15 years. There are some rumblings that the COVID recession will hasten the demise of Social Security. Changes to the CPI measurements for Social Security will be good for retirees, and it may not be great for the overall financial health of the Social Security safety net.
While cost-of-living increases for Social Security is a good thing when it comes to helping offset inflation, it is not free money. Seniors are facing higher costs on many expenses they cannot easily avoid. Rising rents, rising health care costs, rising food prices (the list goes on) are driving an increase in credit card debt among seniors. A strong indicator that retirees are spending beyond their retirement incomes. Keep in mind that Social Security benefits are taxable, starting at just $25,000 of income for singles. The number is slightly higher at $32,000 for married couples. A big Social Security COLA will increase benefits but will also likely increase the taxes due by many retirees.
With or without this legislation, America is facing a retirement planning crisis. Living on Social Security alone is not going to fund your dream retirement. Take steps today to invest in your future and fully fund your retirement accounts so you can securely maintain your standard of living in retirement.