Why Social Security COLAs Can't Keep Up With Seniors' Soaring Costs

Social Security benefits are intended to help retirees make ends meet. But a recent study from the Senior Citizens League highlighted just how quickly the expenses that retirees have to pay outpace the annual growth of Social Security payments through cost-of-living increases, also known as COLAs.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, takes a closer look at the study, describing how Social Security COLAs work to help benefits keep up with inflation. As Dan notes, the study says that almost all retirees face rising costs that dwarf their COLAs, with half having costs that rise at six times or more their COLA amount. Yet there's still debate about whether COLAs are too high or too low, with some arguing they should be even smaller in order to support the financial stability of the Social Security program. Health-care coverage is a key problem that senior citizens face, and even though the rate of increases in health-care costs has slowed lately, it still represents a huge risk. Dan concludes that it's important when making your initial Social Security benefits decision not to assume that COLAs will keep up with your expenses, and that can make it smarter not to claim earlier than you absolutely have to.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 29, 2014, at 3:45 PM, JohanStrauss wrote:

    The government hates seniors. The government hates veterans, too. And children. And middle-class whites. And small businesses. And xtians. But the government loves illegal aliens, "gays", minorities, mooslim extremists, and welfare slackers.

  • Report this Comment On June 29, 2014, at 4:38 PM, ghelmz21 wrote:

    I bet they can keep up with Congressional cola's and government employees!

  • Report this Comment On June 29, 2014, at 6:45 PM, bkmobal wrote:

    Because they don't have the money to pay COLA's be lucky to get your Social Security without a cut.

  • Report this Comment On June 29, 2014, at 8:23 PM, mountain8 wrote:

    And how far do we fall if the minimum wage is doubled to $15? I understand that's a 100% raise versus my to nothing.

  • Report this Comment On June 30, 2014, at 1:25 AM, ChMacQueen wrote:

    They can afford to pay welfare deadbeats who often never really worked. But they can't afford to take care of seniors and Veterans. Priorities are really f*cked up. Time to kick EVERY welfare case to the curb until Social Security and Veterans payments and medical is take care of 100%.

  • Report this Comment On June 30, 2014, at 12:38 PM, WilliamLarsen wrote:

    Cost of Living Allowance "COLA" is based on the change in the CPI year over year. For COLA to be paid, the CPI in any given year in September must be greater than any previous CPI. If not, the COLA is ZERO.

    The CPI is the change in the value of a basket of goods. Therefore, COLA mathematically only replaces the goods that were in the basket in the year the person turns 60. Why 60? SS-OASI uses wage indexing to calculate the initial SS-OASI benefit. It is based on indexing a workers OASI wages in the year they were earned by the change in the the SS wage base at age 60 divided by the SS wage base in the year wages were earned.

    Wages for the mos part indicate a a change in the standard of living. It included inflation as well as productivity. This is a key difference from CPI which only measures the change in cost.

    Therefore, COLA only replaces the goods and services that were available in they year you turn 60. Any goods and services that are added after age 60 ARE NOT IN their basket of goods. This may include Rx medicine that comes to market years later, Cell phones that come to market years later. In simple terms COLA maintains the SS-OASI beneficiary with the same standard of living as in the year they turn 60.

    If COLA were to maintain the standard of living based on wage growth, it would be calculated based on the SS-wage base. Therefore, complaining that CPI does not keep pace with expenses is a meaningless argument. It was not designed to do so.

  • Report this Comment On July 07, 2014, at 7:41 AM, deckdawg wrote:

    The study cited appears to rely on self reported cost increases. If that's the case, it would be completely useless. Just because some old guy marks on a survey that his costs are increasing 6 times faster than the SS COLA doesn't make it so.

    A proper study would need to recruit a statistical representation of the SS population, and examine in detail their cost of living for several years.

    Advocacy groups constantly publish "studies" like this which are really nothing more than propaganda.

    I am close to SS age, so obviously I would like to draw as much as possible. But any discussion about the size of the COLA needs to be based on facts.

    And, yes, the SS disability programs are completely out of control. All one needs do is document that they are an alcoholic or drug addict, and begin receiving a disability check for the rest of their life. Somehow, that seems completely at odds with the original intent of the program.

  • Report this Comment On July 08, 2014, at 10:12 AM, gskinner75006 wrote:

    Social security was never meant to be a retirement plan. Don't even get me started on the disability fraud plan.

  • Report this Comment On July 08, 2014, at 1:54 PM, jpalrao wrote:

    Social Security is merely a way to take money away from you and invest in the Federal Government GENERAL Fund for over forty years of contribution and then give you the interest when you retire. I pay over $50 a week for 52 weeks times 45 years, only to receive $1900 in the year 2037. Social Security should be privatized and not let the greedy government force me to hand over my hard earnings over to them. PONZI SCHEME is written all over Mandatory Social Security withholding.

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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