The Trouble With the Social Security COLA
It doesn't keep up with the rising costs that seniors pay for goods and services, according to The Senior Citizens League.
No matter how high the government sets next year’s cost-of-living adjustment (COLA) for Social Security recipients, it will fail to offset the declining purchasing power of American seniors.
According to a new report from The Senior Citizens League, Social Security recipients have lost 33% of their buying power between 2000 and 2019.
“One would think that a higher cost-of-living adjustment in 2019 combined with relatively low inflation, would lead to an improvement of buying power in Social Security benefits,” said Mary Johnson, a Social Security policy analyst at the league and author of the report, in a statement. “But any improvement was offset by spiking costs of essentials, including out-of-pocket spending on prescription drugs.”
At best, the 2.8% Social Security COLA for 2019 delivered a one percentage point gain in the purchasing power of seniors, who had lost 34% of buying power between 2000 and 2018.
The 2019 COLA raised the average Social Security payment of $1,400 a month by roughly $39, but that’s not enough to keep up with rising costs of daily living for many seniors, according to The Senior Citizens League. Early findings from its annual survey of seniors found that close to 80% of survey participants said their household spending rose by more than $39 per month this year.
“When costs climb more rapidly than benefits, retirees must spend down retirement savings more quickly than expected, and those without savings or other retirement income are either going into debt, or going without,” said Johnson.
She estimates the COLA for next year will be about 1.7%, although that number could change as monthly Consumer Price Index data through September is collected before the Social Security Administration calculates the increase. The 2020 COLA, which will be announced in October, will be based on changes for the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as CPI-W, over the 12 months from the third quarter of 2018 to the third quarter of 2019.
Johnson is also estimating that Medicare Part B premiums will increase 6.5%, or $8.80, above the current premium of $135.50.
Medicare Part B premiums are among the 10 fastest growing costs of older Americans. Between 2000 and 2018 that monthly premium tripled, as had the annual cost of homeowner’s insurance, according to The Senior Citizens League. But prescription drug costs rose even more, averaging close to $4,000 a year, according to the league. It examined the cost increase of 39 key items for seniors between 2000 and 2019, some like the Medicare Part B premium not included in the COLA calculation.
“Legislation is needed to provide a more fair and adequate COLA,” said Johnson. The league is among several organizations that supports legislation, including the Fair COLA for Seniors Act, that would base the Social Security COLA on the Consumer Price Index for the Elderly (CPI-E), which emphasizes the prices of goods and services that seniors consume.
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