In a little more than a month a new president will be sworn in and it could have a positive impact on Social Security beneficiaries.
As The Motley Fool highlights in this story, President-Elect Joe Biden has a plan to change the formula in which Social Security annual increases are calculated. We learned a few months ago that in 2021 Social Security beneficiaries will see a 1.3 percent increase in the cost-of-living adjustment (COLA), but under a Biden plan it could have been more.
Currently the consumer price index is used to calculate annual Social Security increases. Many disagree with using this formula because the largest group of Social Security beneficiaries is seniors, who experience inflationary expenses in different areas compared to the general public. As the story points out, seniors tend to spend more on housing and health care than the general public and the consumer price index focuses more on the price of consumer goods. Below is an explanation from The Motley Fool of how a proposal from Biden to change the formula could increase annual raises.
President-elect Biden has proposed making a change to a different consumer pricing index that’s built around the spending of elderly Americans, which is called CPI-E. Making this switch from CPI-W to CPI-E would make the COLAs around .2 percentage points higher each year. That would mean that instead of seniors getting a 1.3% raise in 2021, they’d get a 1.5% raise.
That extra .2 percentage points definitely isn’t nothing. But it’s also not that much, either — especially since many seniors don’t receive very large benefits to begin with. In December 2020, the average benefit is just $1,523. Under the current COLA calculations, a senior with an average benefit will see it go up around $20.00 per month next year. If Biden’s plan had already been in effect in 2021 and CPI-E was instead used to calculate the COLA instead of CPI-W, the same senior would instead get a benefits increase of around $22.85 per month. That’s about $34 more per year using CPI-E vs. CPI-W.
Unfortunately, even under a Biden Administration plan, these increases will not be life changing, but it would be a better way to determine the COLA because it better gages the increased costs seniors face year-to-year. If you look at the 1.3 percent increase in 2021 it results in a very modest increase that does not go very far. According to Social Security, the average monthly Social Security benefit is $1,523 and a 1.3 percent increase results in about $20 extra each moth or $240 a year.
Many seniors and people who are receiving Social Security Disability Insurance (SSDI) benefits rely on these benefits as their only source of income and the benefits just don’t go far to provide for beneficiaries. Many seniors and people with disabilities are living in poverty and the time to change to a new formula and increase Social Security benefits is now and well overdue.
