Seniors largely lock in their Social Security benefits at the time they file for them. But collecting the exact same benefit for life means seniors don't have a means of keeping up with their bills in the face of inflation.
That's why Social Security's cost-of-living adjustments, or COLAs, were introduced back in the 1970s. Each year, data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is analyzed to determine how much of a raise Social Security recipients are entitled to. And the results aren't always great for seniors.
In 2020, for example, beneficiaries received just a 1.6% COLA. That raise, in turn, would've added about $24 a month to the average senior's paycheck if it weren't for the fact that Medicare premiums rose simultaneously, thereby knocking out more than one-third of that increase.
But that's not the only reason why seniors are unhappy with not just this year's COLA, but COLAs in general. On a whole, they do a poor job of serving their intended purpose: keeping up with inflation. The Senior Citizens League estimates that Social Security benefits have lost 33% of their buying power since 2000. And that's why the majority of seniors feel the way COLAs are determined needs to change -- immediately.
A new way to calculate COLAs
In a recent survey by the Senior Citizens League, 85% of retirees said Congress needs to make changes to deliver higher COLAs to seniors. This especially holds true in light of the fact that COLAs have been extremely low for more than a decade, averaging just 1.4% annually. By comparison, COLAs averaged 3% annually between 1999 and 2009.
Not only have COLAs dipped in recent years, but Medicare Part B premiums -- which eat into Social Security increases -- have grown nearly three times as fast. As such, seniors on both Social Security and Medicare have seen a measly income boost over the past 10 years.
What's the solution?
Many seniors insist that COLAs need to be calculated differently. Right now, the CPI-W is an imperfect tool for determining COLAs, because its data reflects expenses that aren't senior-specific. Seniors, for example, are likely to struggle with rising healthcare costs, and care less about fluctuating fuel prices, since they don't commute daily to work. That's just one example, but it explains why 38% of the seniors surveyed by the Senior Citizens League think there should be a distinct CPI for older Americans -- the CPI-E, or Consumer Price Index for the Elderly, whose data would then dictate what COLAs amount to.
Meanwhile, 47% of seniors feel there should be a minimum 3% COLA guarantee each year -- a raise that's more in line with the general rate of inflation.
Will COLAs change for the better?
So far, Congress hasn't budged on calculating COLAs despite senior advocates being up in arms for years about the fact that the current system is largely skewed. For the time being, though, seniors may need to brace for paltry raises -- and find other ways to buy themselves the financial wiggle room they crave, like cutting back on expenses or engaging in part-time work.