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 Retirees will get a 1.7 percent bump in their Social Security
benefit next year, according to the Social Security Administration,
which announced the annual cost-of-living adjustment (COLA) on
Wednesday. Recipients of disability benefits and Supplemental
Security Income also will receive the COLA.
That reflects continuing slow inflation in the economy - the COLA
has averaged 1.6 percent over the past four years - but it's not
enough to keep up with the higher inflation retirees face.
My in-box fills up with angry e-mail messages about the COLA every
year. So if you’re gearing up to accuse Washington politicians of
conspiring against seniors, please note: By law, the COLA is
determined by a formula that ties it to the Consumer Price Index for
Urban Wage Earners and Clerical Workers (CPI-W), which is compiled
by the U.S. Bureau of Labor Statistics (BLS).
There is good news about this year’s COLA: Beneficiaries will keep
every penny. There won’t be any offset for a higher Medicare Part B
premium, which typically is deducted from Social Security payments.
The premium will stay at $104.90 for the third consecutive year.
Still, the COLA formula should be revised as part of the broader
Social Security reform that Congress must tackle. Many economists
and policymakers say the CPI-W doesn’t measure retiree inflation
accurately.
“From an ideal math perspective, what you want is a calculation
based on an index that matches retirees’ cost of living," says
Polina Vlasenko, a senior research fellow at the American Institute
for Economic Research. “The CPI-W is constructed to measure spending
patterns of urban wage earners, and it’s pretty clear that retired
people spend differently than wage earners.”
A recent national survey by the Senior Citizens League illustrates
the cost pressures seniors, especially those living on fixed, lower
amounts of income, face. Half of retirees said their monthly
expenses rose more than $119 this year, while an even higher
percentage (65 percent) said their benefits rose by less than $19
per month.
Other research by the group, based on BLS data, shows that Social
Security beneficiaries have lost 31 percent of their buying power
since 2000. Among big-ticket items, the largest price hikes were for
property taxes (104 percent), gasoline (160 percent), some types of
food and healthcare expenses.
Low COLAs also cut into future benefits for Americans who are
eligible for benefits (ages 62 to 70) but haven’t yet filed. When
you delay taking benefits until a later age – say, full retirement
age (66) - you get full benefits increased by the COLAs awarded for
the intervening years.
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COLAs are prominent in the debate over Social Security reform that
is likely to be rekindled in the next Congress (http://reut.rs/1omD5yq).
COLA reform could involve more generous adjustments - or a benefit
cut. A cut would be achieved by adopting the “chained CPI,” which
some say more accurately measures changes in consumer spending by
reflecting substitution of purchases that they make when prices
rise. The Social Security Administration has estimated the chained
CPI would reduce COLAs by three-tenths of a percent annually.
A more generous COLA would come via the CPI-E (for “elderly”), an
alternative, experimental index maintained by the BLS that is more
sensitive to retirees' spending. That index generally rises
two-tenths of a percent faster than the CPI-W.
Congress has been gridlocked on Social Security, but public opinion
is clear. The National Academy of Social Insurance (NASI) released a
national poll Thursday that shows 72 percent support raising
benefits. The survey also asks Americans to say how reform should be
paid for. The most popular options (71 percent) included a gradual
elimination of the cap on income taxed for Social Security ($117,000
this year, and $118,500 in 2015) and a gradual increase over 20
years on the payroll tax rates workers and employers both pay, from
6.2 percent to 7.2 percent.
Poll respondents also backed adoption of a more generous COLA, such
as the CPI-E.
“Seniors are noticing the very small COLAs, and they just have a
feeling that prices are going up more than that,” says Virginia
Reno, NASI’s vice president for income security policy. “If you
measure the market basket separately for seniors, average inflation
has been a bit higher because they spend a larger share of their
money on healthcare, and for things like housing and heating.”
(Follow us @ReutersMoney or at http://www.reuters.com/finance/personal-finance.
Editing by Douglas Royalty)
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