Whether you're retiring soon or plan to do so decades from now, you'll probably rely on Social Security.
In April, national pollster Gallup released data on an annual survey it conducts of nonretirees and retired workers receiving benefits. It found that a combined 89% of retired workers rely on Social Security as a major or minor source of income. Meanwhile, an all-time record 88% of nonretirees expect to lean on Social Security to some degree during retirement.
There are few events more important to Social Security's tens of millions of beneficiaries than October's annual cost-of-living adjustment (COLA) announcement by the Social Security Administration.
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A meager COLA in 2021
Think of COLA as the "raise" beneficiaries receive in the upcoming year to account for the rising price of goods and services (i.e., inflation). COLA doesn't help seniors get ahead of inflation; it simply trues up payouts to ensure beneficiaries don't lose purchasing power on their Social Security income.
As announced on Oct. 13, 2020, Social Security recipients will get a 1.3% COLA in 2021. Although the coronavirus disease 2019 (COVID-19) pandemic pushed the U.S. economy into a recession, inflation resurged in costs for food, shelter, and medical services, ensuring that beneficiaries will get larger payouts in the upcoming year.
However, the 1.3% COLA ties for the second-smallest positive COLA in history. It perpetuates an 11-year stretch of subpar COLAs.
Social Security's inflationary tether -- the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) -- has done a poor job of tracking the actual inflation recipients experience. As its name implies, this metric tracks the spending habits of urban and clerical workers, many of whom aren't seniors or Social Security recipients. The COLA calculation thus often underweights important expenses for seniors, such as medical care and shelter, while overweighting lesser costs like apparel and education.
The purchasing power of Social Security income has fallen by 30% since 2000.
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A new bill to more than double Social Security's 2021 COLA has stalled
With the COVID-19 pandemic far from over and seniors continuing to lose purchasing power on their Social Security income, two Democratic lawmakers -- Rep. John Larson of Connecticut and Rep. Peter DeFazio of Oregon -- introduced legislation to boost payouts just days after the COLA announcement.
The Emergency Social Security COLA for 2021 Act (H.R. 8598, for those interested) calls for raising Social Security's COLA in the upcoming year from the announced 1.3% to 3%. COLAs averaged 3% between 1999 and 2009, but have averaged closer to 1.4% in ensuing years. For the average retired worker, a 1.3% COLA equates to a $20/month increase, or about $240 a year. Comparatively, a 3% COLA would boost benefits by closer to $45/month, or approximately $540 a year.
More than seven weeks have passed since this bill was introduced in the Democrat-led House of Representatives, and we haven't heard hide nor hair about it. What's happened to it, and the chances of more doubling Social Security's 2021 COLA?
The bill sponsored by DeFazio and Larson reached the House Ways and Means Committee for review on the same day it was introduced, Oct. 16. It will eventually wind up with the Subcommittee on Social Security.
John Larson helms this Subcommittee. In total, there are 11 members, seven of whom are Democrats. This suggests that DeFazio and Larson's proposal has a good chance of eventually getting a green light from the Subcommittee, though there's no official review timeline.
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It's unclear if the bill will be introduced for vote on the House floor. Democrats still control the House, but overwhelming party-line support is necessary to pass the measure.
Even if the Subcommittee on Social Security approves this bill and it passes House floor vote, it's most likely dead on arrival in the Senate. Republicans currently have a slim majority in the Senate. Senate Majority Leader Mitch McConnell is unlikely to allow this bill to reach the floor for vote. Republicans and Democrats agree that the CPI-W is flawed, but have different fixes for the problem.
If Democrats win both Georgia Senate runoffs in early January, they might tie Republicans with 50 seats in the upper house. In such a scenario, Vice President-elect Kamala Harris would be the deciding vote during a tie. Even under this best case-scenario, there'd be no chance of DeFazio and Larson's bill becoming law until well into 2021.
The more than 46 million retired workers currently receiving Social Security should prepare for another subpar payout increase, with no signs of immediate help from Capitol Hill.
