COLAs aren’t cutting it.
The 3.2% Social Security cost of living adjustment (COLA) is well above the 2.6% average over the past two decades, according to The Senior Citizens League (TSCL).
Still, “80% of retirees think Congress should beef up inflation protection by providing a COLA that more closely reflects inflation experienced by older adults,” it recently reported. Some senior advocates, including The Senior Citizens League, have proposed using a “senior’ CPI to determine the annual COLA.
“If that were the law today, the COLA in 2024 would be almost a percentage point higher—4%, versus the 3.2% just announced by the Social Security Administration,” Mary Johnson, a Social Security policy analyst for The Senior Citizens League, said in a statement.
Johnson based that estimate on the rate of increase in the Consumer Price Index for the Elderly (CPI-E); the most recent data was released yesterday.
“Since 1975, the Social Security COLA has been calculated annually using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W),” the survey noted. “Still, oddly enough, that index does not survey the costs of retired households over the age of 62. Today, there are other consumer price indexes to choose from that better reflect inflation experienced by older Americans. Launched in 1983, the CPI-E surveys the cost changes of households aged 62 and older.”
Retirees tend to spend a bigger share of their incomes on housing and medical costs—two spending categories that tend to rise more quickly than overall inflation.
Meanwhile, younger working adults spend more on commuting costs and energy while spending considerably less on healthcare than older adults. According to The Senior Citizens League research, Social Security benefits have lost about 36% of buying power since 2000.
It added that CPI-E tends to rise more quickly than the CPI-W in most years, but there are notable exceptions, such as in 2021 and 2022, when gasoline prices soared.
The Social Security 2100 Act, legislation introduced in the House by Rep. John Larson (D-Conn.), would change how COLA is determined by requiring the higher of the CPI-W or the CPI-E to be used in calculating the COLA.
A new analysis by Johnson comparing the two indexes with the proposal to use the higher of the two indicates that using this approach would provide greater inflation protection and higher benefit growth over time.
When COLA increases under current law are compared with COLAs calculated using the higher of the CPI-W or the CPI-E over the past ten years, the analysis found that an average Social Security benefit of $1,294 in 2014 would grow to $1,692.20 in 2024 using the CPI-W.
Using the higher of the two benefits, the $1,294 benefit in 2014 would be significantly higher—$1,749.8 in 2024 or $57.60 more per month than under current law.
Her analysis additionally found that this calculation method would have provided an additional $3,787.80 more in Social Security income from 2014 through the end of 2024. The table illustrates how monthly benefits compare by estimating what the COLA would have been using the CPI-E.-E.
