Close Close
Sign In
Newsletters
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Podcast Center Video Center Webcasts Resource Center Events
About ThinkAdvisor Contact Us Advertise With Us Asset & Logo Licensing Sitemap Terms of Service Privacy Policy Copyright © 2024 ALM Global, LLC. All Rights Reserved.
ThinkAdvisor
capitol in Washington DC with a Social Security card and money

Regulation and Compliance > Legislation

New Bill Changes How Social Security COLAs Are Calculated

By Melanie Waddell

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • The Consumer Price Index for Americans 62 years of age and older weights expenses like health care more heavily.
  • Lawmakers argue the change from CPI-W would help retirees better keep up with rising costs.
  • The CPI-E does not always result in a bigger COLA than the CPI-W.

Sen. Bob Casey, D-Pa., chairman of the Senate Special Committee on Aging, has introduced new legislation, the Boosting Benefits and COLAs for Seniors Act, that would direct the Social Security Administration to adjust benefits based on the Consumer Price Index for Americans 62 years of age and older (CPI-E).

The change to the cost-of-living adjustment calculations — which currently use the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) — is intended to better reflect the costs that older adults face. But a look at previous COLAs shows that the senior-focused index would not always have resulted in higher benefits.

Co-sponsors of the bill include Sens. Richard Blumenthal, D-Conn.; Peter Welch, D-Vt.; John Fetterman,. D-Pa.; Kirsten Gillibrand, D-N.Y.; and Bernie Sanders, I-Vt.

“As the costs of basic goods and services for seniors rise, we cannot allow that promise to be broken,” Casey said in a statement. “The Boosting Benefits and COLAs for Seniors Act would help seniors contend with rising costs and ensure that Social Security remains a lifeline for all who need it.”

The bill, introduced on March 21, also directs the Bureau of Labor Statistics to calculate and publish the CPI-E on a monthly basis.

CPI-W vs. CPI-E

The COLA is currently based on the CPI-W from the previous year. “CPI-W is reflective of the everyday spending of Americans, and includes expenses like food, consumer goods, and housing, among others,” Casey explained. “Despite this, Social Security benefits have not kept up with costs and older adults are left struggling to afford food, medications, clothing, and other necessities.”

The CPI-E (E used to stand for Elderly) weights costs more often faced by older adults, like medical expenses, more heavily, Casey said.

However, when looking at the history of Social Security COLAs, using CPI-E would not always have resulted in a larger benefit increase. In 2021, for example, the COLA with CPI-E would have been 4.8% instead of 5.9%, retirement researcher Alicia Munnell pointed out in a 2022 interview.

Another Social Security expert, Marcia Mantell, has written that the CPI-E does not reflect the millions of Social Security beneficiaries who are younger than 62, including people with disabilities, surviving spouses and their children.

Social Security Advocates Weigh In

The National Committee to Preserve Social Security and Medicare has endorsed Casey’s bill.

“While Social Security COLA’s have been decent during the past two years, there have been times in the past decade when the COLA was as little as 1.3% and ZERO percent,” Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare, told ThinkAdvisor Thursday in an email. “Seniors need healthy COLAs in order to keep up with the impact of inflation on their basic living costs, especially since the average Social Security benefit is already quite modest.”

Nancy Altman, president of Social Security Works, which also endorsed the bill, said in another email Thursday that Social Security’s annual COLA “is among its most important features. But benefits are slowly eroding because the COLA is based on a formula, the CPI-W, that under-measures health care costs and other expenses Social Security beneficiaries face.”

The Boosting Benefits and COLAs for Seniors Act “would fix this by incorporating a more accurate formula, the CPI-E, which is based on the specific expenses of seniors rather than workers,” Altman relayed. “We commend Sen. Casey and his colleagues for this legislation and urge Congress to pass it swiftly, either on its own or as part of a comprehensive Social Security expansion bill.”

Altman added that while Social Security legislation is unlikely to pass in 2024, President Joe Biden and the Democrats in Congress “are running for re-election on a platform of expanding Social Security, paid for by the ultra-wealthy. If they win, then we think real progress can and will be made in 2025.”

Melanie Waddell

@Think_MelanieW

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.