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Retirement Planning > Spending in Retirement > Income Planning

COLA Wars: Will Congress Change How Social Security Raises Are Calculated?

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What You Need to Know

  • A lawmaker recently introduced a bill to tie Social Security COLAs to CPI-E instead of CPI-W.
  • The CPI-E, focused on older adults' costs, has been rising more slowly than CPI-W in 2021.
  • There is doubt the legislation would be passed in time to affect the 2022 COLA — or at all.

As inflation climbs in 2021, the Social Security cost-of-living adjustment for 2022 is expected to rise as well. The latest forecast, based on the consumer price index for urban wage earners and clerical workers (CPI-W), from Social Security and Medicare policy analyst Mary Johnson of The Senior Citizens League came in at 6.1%.

Advocacy groups argue that Social Security COLAs should be based on the CPI for Elderly, or CPI-E, which better reflects senior expenses. Indeed, Congress is considering at least one bill to make the change. And though the CPI-E calculation typically has shown higher COLAs in the past 11 years, that is not always the case.

Rep. John Garamendi, D-Calif., introduced H.R. 4315, a bill to calculate COLAs for Social Security benefits based on CPI-E, rather than on the CPI-W, a month ago.

Over the past 11 years, the CPI-E measure has grown faster than the CPI-W. But in some years it doesn’t. Using June inflation data, the COLA for 2022 would be only 4.8% if calculated using the CPI-E.

Some observers worry about the impact of enacting a COLA change too soon this year and shrinking the 2022 benefit increase. But the fate of Garamendi’s bill is uncertain, and it is highly unlikely to pass in time to affect next year’s payments.

“The window for action affecting the 2022 COLA is extremely narrow due to the COLA announcement being Oct. 13, 2021,” Johnson told ThinkAdvisor in an email. “That would make getting this passed as a stand alone bill extremely difficult, especially in the divided Senate.

“What could potentially occur is that it could get wrapped into another bill such as The American Families Plan, so we can’t  rule anything out. … [But] this is not the first session of Congress to see the Garamendi CPI-E bill.”

Nor will this be the only legislation on the topic, according to Dan Adcock, director of government relations and policy for the National Committee to Preserve Social Security and Medicare (NCPSSM).

“CPI-E is likely to be included in the larger Social Security bill that Congressman John Larson plans to introduce,” he told ThinkAdvisor in an email, noting that Congress still has infrastructure legislation and a separate budget reconciliation bill to work on first.

But he’s realistic about it. The bill’s “chances in the Senate are a much heavier lift because 60 votes are needed to pass any bill that changes Social Security,” he said.

“It is our hope that House approval of a Social Security bill will create momentum in the Senate for the legislation. And at least a recorded vote in the Senate would put additional pressure on senators to vote for improving Social Security benefits, like a more accurate COLA, and extending solvency, without cutting benefits.”

CPI-W vs. CPI-E: What’s the Difference?

The major difference, which is especially apparent this year, is how sectors are weighted. CPI-W is 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. Energy prices are heavily weighted.

The inflation jump this year largely is due to energy prices, and therefore the CPI-W rose dramatically. But medical costs, weighted more heavily in the CPI-E, rose more slowly due to the pandemic.

What if the Change Is Made?

While the CPI-E grows more slowly than the CPI-W in some years, benefits would have increased more since 2011 using the senior-focused index, according to the Senior Citizens League.

Comparing benefits on a compounded basis, the group estimates that a retiree who collected $1,550 a month in 2011 would receive $1,901 more per year in 2022 if the CPI-E had been used to calculate COLAs over that period.

Chart on how Social Security COLAs would compare using CPI-W vs. CPI-E

“Over time the CPI-E tends to yield the higher Social Security income because it is slightly higher in most years,” Johnson explained. “This year is not an aberration. The CPI-W has been higher several times in the past when gasoline prices were rising quickly.”

She adds that it’s likely that the price of gasoline will drop as electronic vehicles become more widely used.

Debate Continues

When asked to provide pros and cons on the which measurement was better, Texas A&M law professors Robert Bloink and William H. Byrnes had different views.

Bloink thought the CPI-W wasn’t necessarily an accurate measurement of how COLAs affect older people on Social Security, while Byrnes noted that older adults made substitutions on purchasing decisions. Further, he said, inflation tended to affect seniors less than other groups.

Bloink noted that seniors were at high risk of suffering because of rising costs, saying the 2021 COLA was “woefully insufficient given the disproportionate impact that the COVID-19 pandemic had on older Americans.”

Byrnes was not sympathetic: “The complexity of changing to the CPI-E measure of inflation would be overly burdensome from an administrative perspective without providing the corresponding benefits that proponents claim.”

Yet this might be a moot point if another idea winds its way into legislation.

According to Johnson, “There’s very broad support among retirees to back up our COLA system with a guarantee that inflation adjustments would be no less than 3%.”


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