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Here's How Much This Joe Biden Social Security Fix Would Really Boost Benefits

By Dan Caplinger – Aug 30, 2020 at 12:02PM

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It might not be as much as you'd think.

The 2020 presidential campaign is moving into overdrive, and as the election approaches, voters are watching the candidates square off on key issues. Social Security has always been an important part of how older voters make their decisions, and for a long time, many retirees feel like the program hasn't given them all the benefits they deserve.

One suggestion that former Vice President Joe Biden has made about Social Security has to do with the annual cost of living adjustments (COLAs) that Social Security recipients get in their monthly checks. Most years, Social Security payments get a slight bump higher. Senior advocacy groups, however, have called for the use of a different measure of inflation to determine the boosts to Social Security, and Biden has included the adoption of this new metric in his platform. The question, though, is how big a difference using this new methodology would make for seniors. Below, we'll look more closely at that question.

Two older people holding hands, in front of a Social Security card framing George Washington's picture from the $1 bill.

Image source: Getty Images.

Experimenting with the CPI-E

For years, Social Security's COLAs have been tied to the standard CPI-W measure of consumer prices. This inflation index reflects the general purchasing behavior of wage earners, with weightings for food, shelter, and other needs.

In response to criticism that the CPI-W wasn't representative of elderly spending patterns, the Bureau of Labor Statistics has also experimented with a measure called the CPI-E. This metric uses the same price change data but weights each category differently, based on the different needs of elderly Americans.

The CPI-E has larger allocations to healthcare expenses and to the cost of housing, because those expenses tend to take up a bigger portion of seniors' income. By contrast, spending on transportation and food tend to be somewhat lower for Social Security recipients than for younger Americans.

Does it make a big difference?

The BLS has published CPI-E data long enough to come up with what the annual Social Security COLAs would've been using it rather than the current CPI-W measure. Below, you can see the disparities over the past decade.

Year

Actual COLA under CPI-W

Proposed COLA under CPI-E

2010

0%

0%

2011

0%

0%

2012

3.6%

2.9%

2013

1.7%

1.8%

2014

1.5%

1.6%

2015

1.7%

2%

2016

0%

0.6%

2017

0.3%

1.5%

2018

2%

2.1%

2019

2.8%

2.6%

2020

1.6%

1.9%

Data source: Social Security Administration, Bureau of Labor Statistics. Note: Year of COLA reflects the year in which the payment increase takes effect in January.

As you can see, the figures are often quite close to each other in a given year. However, there are periods during which the two have diverged fairly significantly. In particular, the big drop in energy prices that kept COLAs for 2016 and 2017 so low didn't depress the CPI-E by nearly as much. However, the larger impact of the 2008-2009 recession kept CPI-E levels down to a greater extent that the CPI-W.

All told, when you look at the total price increase for the two measures since 2010, there's not a huge disparity. The CPI-W gave seniors a net boost of 16.2%. Using the CPI-E, seniors would have received total COLAs of 18.3%. That 2.1 percentage point difference works out to about $32 per month in extra pay for the typical senior -- not huge, but not insignificant either.

Don't count on the CPI-E

Support for the CPI-E measure of inflation isn't universal. Republicans have tended to prefer other metrics for use in measuring COLAs, including some that would likely slow the rate of increase beyond what the current CPI-W has given seniors. Even if Democrats were to win both houses of Congress and the White House, there are still enough competing Social Security proposals to make reaching consensus challenging.

As a result, older Americans shouldn't count on Social Security adopting CPI-E anytime soon. Until then, people who rely on the program will simply have to do what they can to make the most of what benefits they do receive.

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