A previous blog post reported on the 34 percent reduced purchasing power Social Security beneficiaries have experienced since 2000, mainly due to how the annual cost-of-living adjustment (COLA) is a calculated each year, and now leading Democrats have offered a solution.
The COLA Social Security beneficiaries receive is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which takes into account eight different spending categories to determine annual benefit increases based on inflation. Critics of the CPI-W argue that it is not an accurate estimate of the actual costs retirees face because most of their increased costs are related to housing and healthcare spending.
Democratic leaders have offered a new way to measure COLA for Social Security beneficiaries. They contend that the Consumer Price Index for the Elderly (CPI-E) is a better way to determine COLA for Social Security beneficiaries each year and it will increase benefits further to keep up with their increased housing and healthcare costs. Social Security studied a potential CPI-E and through a solvency analysis it was determined that beneficiaries would receive an extra 0.2 percent in benefits annually on average. This does not seem like a significant increase, but it would add up over time and would be an increase of benefits compared to using the CPI-W to determine COLA.
This would seem like an easy solution to the problem, but there are opponents to the idea. Since Social Security is in the midst of a funding gap where the agency will be unable to meet 100 percent of benefit obligations in less than 20 years, this would likely only add to that problem. Nevertheless, whether the CPI-E is adopted or not, Social Security’s funding issue is going to have to be solved as some point.
