Social Security Triggers Debate Over Cost of Living Adjustments: Here’s Why

by Clayton Edwards
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This year, Social Security beneficiaries received the biggest cost of living adjustment since the 80s. That COLA was 5.9%. At the same time, inflation is at 7%, a 39-year high. As a result, some are debating on whether or not the COLA was high enough for beneficiaries. Furthermore, some believe that the Social Security Administration should use a different tool to figure each year’s benefit increase.

According to CNBC, the Social Security Administration announced the cost of living adjustment in October of 2021. However, prices have continued to climb since then. With record-high inflation, lawmakers are debating whether the annual COLA for Social Security beneficiaries actually reflects the price increases that seniors and other beneficiaries are seeing.

Measuring the Cost of Living Adjustment

One side of the debate centers on the measurement that the Social Security Administration uses to calculate the cost of living adjustments every year. They use the Consumer Price Index for Urban Wage Famers and Clerical Workers or the CPI-W. However, some who are in support of Social Security reform say that this is less than optimal. Instead, they say the SSA should use the Consumer Price Index for the Elderly or the CPI-E. President Joe Biden as well as several Social Security advocacy groups are on board with this proposed change.

However, this change would not result in an increased cost of living adjustment every year. Instead, Nancy Altman, president of Social Security Works said it “Simply ensures that benefits will not erode but will maintain purchasing power over time.”

Others note that switching to the CPI-E would have hurt beneficiaries this year. According to the Center for Retirement Research at Boston College, this year’s cost of living adjustment would have been 4.8%. That’s 1.1% lower than the COLA beneficiaries started seeing this month.

 A Closer Look at the CPI-E

The U.S. Bureau of Labor Statistics created the CPI-E in 1987. It “just reweights data collected for the population as a whole,” according to CNBC. As result, it grows at different speeds than the CPI-W.

Historically, the CPI-E rises faster than the CPI-W. From Q3 in 1983 to Q3 in 2021, the average annual growth for the CPI-E was 2.8%. The CPI-W saw a 2.6% annual growth. However, that changed in recent years. The Center for Retirement Research points to transportation and medical costs, which are large parts of seniors’ spending, for this decrease in growth. Both of those areas have slowed in cost growth in the last 20 years.

Alicia Munnell, the director of the Retirement Research Center weighed in on the best way to figure the cost of living adjustments in the future. “If we were setting up a perfect world, then it might be worthwhile having a separate CPI for older people or people who are receiving Social Security benefits.” She says that these Americans’ spending differs from the rest of the population.

Outsider.com