Social Security Benefits and Inflation Adjustments

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Every year, Social Security benefits are adjusted for inflation. However, the current index tied to the program may not always result in the largest possible increase for retirees.

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Proposed Changes to the Index

There have been proposals to switch from the CPI-W, which measures the spending of urban wage workers, to the CPI-E, which focuses more on the spending patterns of older Americans. According to Mary Johnson, a Social Security and Medicare policy analyst at the Senior Citizens League, adopting the CPI-E would typically yield a higher cost-of-living adjustment for benefits.

The Senior Citizens League estimates that next year’s Social Security COLA will be 3% based on the current index. However, if the CPI-E were used, the increase could be as high as 4%.

Complex Factors

It is important to note that the CPI-W may sometimes outpace the CPI-E. For instance, in 2022 and 2023, higher gas prices contributed to the higher increase in the CPI-W as compared to the CPI-E. Additionally, the year of retirement can also impact benefit amounts. The CPI-E places greater emphasis on medical costs and housing needs compared to the CPI-W.

Addressing Insolvency Issues

To address Social Security’s current insolvency issue and improve benefits for beneficiaries, Rep. John Larson, a Democrat from Connecticut, has reintroduced the Social Security 2100 Act. This proposed legislation aims to prevent the depletion of the program’s trust funds, which are projected to run out of money within the next 11 years. Without action from Congress, beneficiaries could face a 20% benefit cut.

Rep. Larson’s latest proposal includes a provision that would tie benefits to either the CPI-E or the CPI-W, depending on which index yields a higher COLA in a given year.

The Impact of Small Differences

While the percentage differences between the CPI-W and CPI-E may seem minimal in some years, they can have a significant impact on benefits. According to Johnson, these small percentage variances can accumulate over time, resulting in additional retirement income.

In conclusion, considering the adoption of the CPI-E as the index for adjusting Social Security benefits could potentially lead to higher cost-of-living adjustments for retirees. Rep. Larson’s Social Security 2100 Act aims to address the program’s insolvency issue while ensuring beneficiaries receive their rightful benefits.

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