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New Bill Would Change How Social Security COLAs Are Calculated

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What You Need to Know

  • Under the Fair COLA for Seniors Act of 2021, the Consumer Price Index for the Elderly would be used to calculate annual benefit adjustments.
  • The COLA is calculated using the CPI-W, which doesn't accurately reflect seniors' costs, the bill's sponsor says.
  • From 1982 to 2011, CPI-E rose at an annual average rate of 3.1%, compared with 2.9% for the methods that are currently used, Rep. Garamendi said.

Rep. John Garamendi, D-Calif., has introduced the Fair COLA for Seniors Act of 2021, which would require Social Security to use the Consumer Price Index for the Elderly (CPI-E) to calculate “a fairer cost of living adjustment” for seniors.

The bill, H.R.4315, introduced Thursday, would increase benefits and ensure that cost of living adjustments in Social Security “reflect the real rising costs for seniors and disabled Americans,” Garamendi said.

From 1982 to 2011, CPI-E rose at an annual average rate of 3.1%, compared with 2.9% for the methods that are currently used, Garamendi said.

The COLA is calculated using the CPI-W, a consumer price index reflecting increases for urban wage earners and clerical workers that is based on a fixed market basket of goods and services. COLAs have surpassed 2% only twice since 2010.

Social Security and Medicare policy analyst Mary Johnson of The Senior Citizens League said on June 10 that the annual cost-of-living adjustment, or COLA, for Social Security benefits in 2022 — usually announced in October — could be 5.3%, the highest since 2009, based on the most recent Consumer Price Index announcement. The CPI for July is scheduled to be announced Tuesday.

“Seniors and disabled citizens rely on Social Security benefits for a large portion of their income, and it’s about time for Social Security benefits to reflect their lifestyles,” Garamendi said in a statement. “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.”

Nancy Altman, president of Social Security Works, added in a statement that “one of the most valuable features of Social Security is its inflation protection.”

The current method of calculating inflation “under-measures the cost of living of seniors and people with disabilities who are disproportionately burdened by rising costs of prescription drugs and other essential medical care,” Altman said. “By more accurately accounting for the costs faced by Social Security beneficiaries, this legislation better prevents the erosion over time of Social Security’s modest but vital earned benefits.”

Changing the index that determines COLAs has been a topic of debate for some time. Some observers believe that CPI-W is good enough because seniors, and all consumers, make substitutions. If beef prices rise sharply, seniors might switch to chicken. Further, their spending habits might protect them from inflation.

“We find that inflation doesn’t impact retirees as much as it impacts younger families,” says Dana Anspath, founder and CEO of Sensible Money in Scottsdale, Arizona and author of “Social Security Sense: A Guide to Claiming Benefits for Those Age 60-70.”

The legislation has 23 original co-sponsors.

Image: Shutterstock