The average price of gasoline has dropped below $2 per gallon, and experts predict we could see that number go even lower in the coming weeks. That's good news for folks who drive a lot or have near-term travel plans, but these days, a large number of Americans are hunkering down in an attempt to flatten the COVID-19 curve and prevent an influx of patients who would otherwise overwhelm the healthcare system.
Also, most people aren't exactly in the process of planning road trips these days, with the whole "stay at home" mandate we're supposed to be following. But while low gasoline prices may seem like nothing more than a wasted opportunity, they could actually spell trouble for recipients who rely on Social Security to pay their bills.
The link between gas prices and Social Security
You may be thinking: "What on earth do fuel costs have to do with Social Security?" But actually, a lot.
Social Security's annual cost-of-living adjustments, or COLAs, are determined by aggregating data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures price fluctuations in the costs of common goods and services, including transportation, apparel, and food and beverages. When the cost of these goods and services goes up, Social Security COLAs tend to follow suit. But when prices hold steady or drop, Social Security recipients risk getting no raise at all. (Thankfully, benefits can't be reduced from their existing level -- the worst that can happen is that they stay the same).
Now, let's get back to gas prices. Right now, the demand for gasoline is low. If it stays low and the current restrictions Americans are facing remain in place for months, we could see gas prices drop even more. Not only that, but when fuel costs less, food and apparel can start to cost less, too, when some of that savings is passed on to consumers.
The result? Seniors who rely on COLAs to keep up with their expenses risk getting no raise at all going into 2021.
That said, COLA calculations are based on third quarter CPI-W data, so for gas prices to wreck seniors' chances of getting a raise, they'd need to stay at their current level or below during July, August, and September. But since there's a good chance the demand for gas will stay relatively low in the coming months, that possibility is certainly on the table.
An imperfect measure
The CPI-W is hardly an accurate measure of the costs seniors specifically face. As the name implies, it accounts for the spending patterns of urban and clerical wage earners -- not retirees. It's for this reason that advocates have long been pushing for an alternate measure to calculate COLAs -- namely, a CPI-E, or Consumer Price Index for the Elderly, which would better account for the costs seniors face, like rising healthcare expenses. But as of now, the CPI-W remains the go-to metric for determining COLAs, which means seniors may find themselves extremely disappointed come 2021.
Of course, in an ideal world, seniors wouldn't be relying solely on Social Security to pay their bills. But the reality is that for many, those benefits represent all or the bulk of their income, and in the absence of a raise, many older Americans could end up struggling in the coming year.