Senior advocates and some politicians talk about the need to change the measure used to calculate the Social Security COLA from the CPI-W to CPI -E.
They talk about the CPI-E better reflecting senior spending and providing a higher Social Security benefit. This talk may be creating unrealistic expectations.
The COLA in 2020 was 1.6%. Had the CPI-E been used, it would have been 1.9% In a few years, the CPI-E would have been lower. “Since the start of CPI-E in 1983, the average difference between it and the CPI-W is roughly .25 percentage point per year.”
But here’s the thing, Social Security COLAs were never intended to cover rising senior expenses. In fact! Social Security was never intended to be the sole retirement income.
Let’s not forget, there are many American families who have been living on fixed incomes for several years.
Social Security Increase Will Not Adequately Cover Rising Senior Expenses. Social Security benefit increases are based on an inflation calculation called the Consumer Price Index for Urban Wage Earners and Clerical Workers that measures the wages of clerical and wage workers in cities.
This way of measuring inflation doesn’t take into account costs specific to seniors, and if Social Security does not keep pace with the actual rise in prices, then beneficiaries can afford less.
A 2018 report from the Senior Citizens League found that the purchasing price of Social Security benefits has declined by a whopping 34% over the last 18 years. In addition, “since 2000, COLAs increased benefits a total of just 46 percent, while typical senior expenses have jumped 96.3 percent.” Mary Johnson, Social Security policy analyst for The Senior Citizens League, told CNBC that “The flat COLAs make it more difficult for retirees to be able to afford to pay for Medicare Part B premiums, which are going up about three times faster than the annual benefit increases.”
To rectify this oversight, the Senior Citizens League advocates a different inflation measure for seniors, the CPI-E (CPI for the elderly) that would account for rising costs specific to seniors like prescription drug costs, food and senior housing.
Since the start of CPI-E in 1983, the average difference between it and the CPI-W is roughly .25 percentage point per year. Sounds tiny but, like interest, it compounds over time. Had the CPI-E been used to determine COLAs since 2015, your benefit would be about 2% higher today. An average benefit of $1,215 per month in 2015 will increase to $1,298 per month in 2020. But had the CPI-E been used to calculate the COLAs, that benefit would have been $26 per month more or $1,324 in 2020.