In mid-October, the Social Security Administration will announce the annual cost of living adjustment (COLA) for Social Security beneficiaries. recipients can expect their checks to increase in January. However, the amount is not expected to cover actual inflation for seniors.
Social Security benefits will rise 3.2 percent, according to estimates by the Senior Citizens League (TSCL). That would hike the average monthly benefit of $1,790 by $57.30.
Workers with disabilities and survivor beneficiaries will get the same increase as retirees. A 3.2 percent benefit boost in monthly payouts would mean $48 extra for workers with disabilities and $47 for survivor beneficiaries.
The 3.2 percent estimate is far below last year’s 8.7 percent COLA. However, it is above the 2.6 percent average for the last 20 years. In addition, it would mark only the fourth time in 15 years, the increase has topped three percent.
Tale of Two COLAs
The Social Security COLA is determined each year based on the rate of inflation as measured by the Consumer Price Index (CPI) for the third quarter (July, August and September). As a result, October 12 – when the Bureau of Labor Statistics (BLS) releases the CPI for September – will be when the COLA is set for next year.
The BLS publishes several CPIs based on segments of the population. There is one specifically designed to measure inflation of seniors – the CPI- E. However, it is not the one used to figure Social Security’s COLA.
For 48 years, the Social Security Administration has based benefit adjustments on the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers). However, the CPI-W is designed to measure the impact of inflation on working families. As a result, it focuses more on energy and electronic costs rather than expenses more pertinent to seniors, such as housing and healthcare.
No Change in Sight
Historically, the CPI-E puts the inflation rate for seniors two-tenths of a percent above the CPI-W. That may seem small, but over time it compounds. Also, it more accurately reflects the increases in the costs of housing, medicines, and other health care.
There have been several efforts in Congress to switch Social Security’s COLA to the CPI-E. Representative James Garamendi (D-CA) originally introduced a measure in 2017 that went nowhere. He was back for another try this year. At the sametime Democrats in the Senate, led by Bernie Sanders (I-VT) introduced their own plan. Neither measure has made it to a vote.
Lost Buying Power
The disconnect between the Social Security COLA and rising living expenses for seniors results in a loss of buying power.
“Retirees know all too well that Social Security benefits don’t buy much today, as when they first retired,” said Mary Johnson, social security policy analyst for TSCL. “To put it in context, for every $100 of goods or services that retirees bought in 2000, today they would only be able to buy $60 worth.”
Of all expenses figured in the CPI, shelter has been the largest. It has increased each of the last 40 months and is up 7.3 percent over the last year, according to the BLS.
As a result of such cost increases, the TSCL estimates that the buying power of Social Security recipients have declined 40 percent since 2010.
Medicare Rise Coming
As noted, healthcare is another major concern for Social Security beneficiaries.
New premiums for Medicare will be issued in November. The rate for 2023 dropped by $5.20 a month. That marked the first time in 12 years that premiums declined. However, it is not expected to mark a new trend.
The latest Medicare Trust Report was issued in March. It projected a premium hike of about $10 per month for Part B coverage, which applies to outpatient treatment. Currently part B premiums are $164.90 a month.
That figure may be low, according to TSCL.
New costs could spring up after the November estimate is issued, notes the TSCL. One example would be costs for coverage of the new Alzheimer’s drug marketed under the brand name Leqembi. It is projected to cost $26,000 per year without insurance.
To cover Leqembi, the TSCL estimates Part B premiums could rise another $5 per month. If that is the case, the total premium hike would be $15 a month. That amount may not seem like much. However, it is significant when you consider that Social Security benefits only equal one-third of a middle income earner’s working wage, according to Social Security’s Chief Actuary.
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Max K. Erkiletian began writing for newspapers while still in high school. He went on to become an award-winning journalist and co-founder of the print magazine Free Bird. He has written for a wide range of regional and national publications as well as many on-line publications. That has afforded him the opportunity to interview a variety of prominent figures from former Chairman of the Federal Reserve Bank Paul Volker to Blues musicians Muddy Waters and B. B. King. Max lives in Springfield, MO with his wife Karen and their cat – Pudge. He spends as much time as possible with his kids, grandchildren, and great-grandchildren.
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