The importance of Social Security for our nation's retired workers simply can't be overstated.

According to the March 2017 snapshot from the Social Security Administration (SSA), 41.6 million retired workers were receiving an average benefit check of $1,365.35 each month. Though this may not sound like much (a little over $16,300 for the full year), it works out to a majority of annual income for 25.4 million out of the aforementioned 41.6 million seniors currently receiving benefits. Social Security is simply that important to making ends meet for retirees.

But this all-important program isn't without its flaws.

Dice next to a piece of paper that reads "Will Your Social Security Be Enough?"

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The 2016 annual report from Social Security's Trustees found a gaping budgetary shortfall in the program. Lengthening life expectancies are allowing retirees to draw a payment for a longer period of time, while the continued retirement of baby boomers is expected to push the worker-to-beneficiary ratio lower over the next two decades. The result, according to the Trustees' estimates, is an expected exhaustion of Social Security's spare cash by 2034, at which point benefit cuts of up to 21% may be needed to sustain the program through the year 2090. While it's comforting to know that Social Security won't go bankrupt, it's nonetheless unnerving for those 25 million-plus seniors who rely on it so heavily to make ends meet during retirement.

A (non)growing problem: Social Security's COLA

Yet, this is far from the only concern that seniors are dealing with. Aside from the possibility of a benefits cut an estimated 17 years down the road, they're also having their purchasing power eroded by subpar annual cost-of-living adjustments (COLA).

Social Security's COLA is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index measures the inflation seen year-over-year by working adults, with the average third-quarter reading in the previous year serving as the baseline, and the average reading in the third quarter of the current year serving as the measure of whether seniors get a raise or not. In three of the past eight years, seniors have received no COLA, and this year they netted an almost laughable 0.3% increase, the smallest "raise" on record, in percentage terms. Based on the average monthly payout for retirees, it works out to an extra $4.10 a month, or $49.20 a year.

Now, here's where things really get sad. A majority of seniors didn't even see a cent of their $4.10 monthly raise in 2017. The reason? Medicare automatically deducts Part B premiums from a person's monthly Social Security check, and Part B premiums rose by 10% in 2017 to $134 a month. Thankfully, the hold harmless clause for existing Medicare members ensures that their Part B premiums don't rise at a faster pace than their Social Security COLA. Unfortunately, it means every cent in COLA increases is liable to be eaten up by higher Medicare costs in the near future.

A worried senior couple looking at their rising household expenses.

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Seniors' household expenses are soaring, new survey shows

And that's still not the end of it. Aside from COLAs being essentially flat (inclusive of Part B premium increases) for most elderly beneficiaries, household expenses are far from flat.

A recent survey conducted by The Senior Citizens League (TSCL), a nonpartisan group that looks to promote the issues senior citizens face, found that for a large percentage of survey-takers (37%) household expenses rose by more than $119 per month in 2016. This was primarily a result of higher medical care expenses and food inflation. If you average this monthly increase out over the course of the year, we're talking about more than $1,400 in household inflation for seniors and the strong possibility of a stagnant Social Security benefit. That's a problem.

TSCL's remedy to this issue is pretty simple: adjust how COLA is calculated. Instead of using the CPI-W, which focuses on younger working Americans and is unlikely to accurately represent the medical care inflation seniors deal with, TSCL recommends switching to the Consumer Price Index for the Elderly, or CPI-E.

As the name implies, the CPI-E only focuses on the spending habits of households with persons aged 62 and up. It would therefore more accurately reflect the higher medical and housing costs that seniors deal with relative to younger, working adults. And, according to a previous analysis by the TSCL, switching to the CPI-E would result in a substantially higher lifetime payout for the average senior citizen. Some 86% of TSCL's previous survey-takers have favored switching Social Security's COLA to the CPI-E from the CPI-W.

A senior couple confused by how small Social Security's cost-of-living adjustments have been.

Image source: Getty Images.

It's not that simple

Though it sounds like a perfect solution on paper, switching Social Security's COLA to the CPI-E isn't that simple; nor does it come without its own set of flaws.

For instance, the CPI-E fails to account for Medicare Part A spending, which very well may account for the bulk of medical spending for most seniors. Part A includes in-hospital stays, surgeries, and long-term skilled nursing care. Without taking Part A into account, even the CPI-E could drastically underestimate the medical inflation seniors are coping with.

The CPI-W also has millions of additional households used in its calculation than the CPI-E. If data points tell a story, then the CPI-W provides far more of an accurate picture of the nation's spending habits than the CPI-E.

Arguably the biggest issue of all is that switching to the CPI-E would mean an even quicker depletion of Social Security's excess cash. Since the CPI-E would likely boost payouts to seniors, it would put the program in an even deeper hole -- and it's not as if Congress has moved with haste to fix Social Security's issues.

On paper the CPI-E offers intrigue. But until we see a concrete bipartisan plan from Congress on how to fix Social Security for the long-term, the CPI-E should remain on the political backburner.

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