Social Security Update – COLA Increase Ends, But New Change Will Raise Retiree Payments

The Social Security program has been a topic of concern for years, with ongoing efforts to reform it to ensure its sustainability and protect beneficiaries. A new bill, introduced by Arizona Representative Ruben Gallego, seeks to make a significant change to how the annual cost-of-living adjustment (COLA) for Social Security benefits is calculated.

The proposed Boosting Benefits and COLAs Act would amend Title II of the Social Security Act, introducing a long-discussed adjustment: using the Consumer Price Index for Elderly Consumers (CPI-E) instead of the current Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to determine COLA. However, if the CPI-W produces a higher adjustment than the CPI-E, the current system would remain in place to ensure seniors receive the most beneficial outcome.

COLA

At present, the Social Security Administration calculates COLA based on the percentage increase in the CPI-W from the third quarter of the previous year to the same period in the current year. If there’s no increase, which is rare but possible, no COLA is applied.

This adjustment aims to help benefits keep pace with inflation, ensuring recipients maintain their purchasing power. For instance, in 2024, the COLA was set at 3.2%, a decrease from the 8.7% adjustment made in 2023.

Calculation

Representative Gallego has voiced concerns that the current COLA calculation does not accurately reflect the financial pressures faced by seniors. The CPI-W primarily tracks the expenses of wage earners and clerical workers, focusing on goods and services that differ from what retirees need. One key issue is medical expenses, which make up a larger portion of seniors’ budgets. These costs are weighted more heavily in the CPI-E, which is why Gallego advocates for switching to this index.

Gallego emphasized that rising living costs, particularly for healthcare, housing, and medications, have diminished the real value of Social Security benefits for seniors. “My new bill puts more dollars in the pockets of Social Security recipients,” Gallego said in a written statement, highlighting the importance of ensuring that seniors can cover their essential expenses.

Proposed Bill

Gallego’s concerns are shared by Roman Ulman, President of AFSCME Arizona Retirees Chapter 97, who stated that the current method of calculating COLA fails to account for the inflation that directly affects seniors. He pointed out that healthcare costs, in particular, have outpaced the general inflation rate, making it harder for retirees to manage their expenses with the current COLA.

The bill has also gained traction in the Senate, where Senator Bob Casey of Pennsylvania has introduced a companion bill. This shows a coordinated effort from both chambers of Congress to address the flaws in the current system for calculating Social Security COLA. Given that senior citizens’ issues tend to receive bipartisan support, the proposed legislation could face little resistance.

Seniors

If passed, the Boosting Benefits and COLAs Act would go into effect for COLA calculations beginning in the quarter ending on or after September 30, 2024. This change aims to better align Social Security adjustments with the actual cost of living for retirees, particularly when it comes to healthcare expenses.

This shift could significantly benefit seniors, as the CPI-E is more sensitive to the types of expenses that older Americans are more likely to encounter, such as prescription drugs, doctor visits, and other healthcare-related costs. By more accurately reflecting their spending patterns, this adjustment could help seniors maintain greater financial stability during their retirement years.

Future Implications

The introduction of this bill is a step toward ensuring that Social Security benefits remain adequate as the cost of living rises, especially for those facing higher healthcare costs. While the shift from CPI-W to CPI-E has been proposed many times in the past, the bipartisan nature of support for seniors’ financial well-being suggests that this time, the change might have a better chance of passing.

If successful, this legislation would mark a significant improvement for Social Security recipients, helping ensure that their benefits continue to meet their needs in a more tailored and effective way.

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