You may not realize it, but it is the most important time of year for about 65 million Americans. This is because October is when the Social Security Administration announces all its updates for the coming year.
Once the curtain closes on 2020, we will see more than half a dozen changes to Social Security, including an increase in the full retirement age of individuals born in 1959. But the biggest change of all, and the highest value of over 46 million retired workers, is the living adjustment of costs.
Social Security beneficiaries have increased their way
In its simplest form, the COLA is an “increase” given to account for inflation over the past year with all Social Security beneficiaries. I say pick up with quotation marks because it is not an increase in the true meaning of the word. The COLA is not designed to allow the beneficiaries of Social Security to proceed. Rather, it is to allow social security income of those keeping pace with the rising price of goods and services over time.
October is the most important month because Social Security’s COLA is calculated only in the third quarter (July to September) in readings from the Consumer Price Index for Urban Wage Earers and Clerical Workers (CPI-W). As the Bureau of Labor Statistics reports September inflation data during the second week of October, it becomes the final puzzle piece needed to calculate the COLA of Social Security.
The Coronovirus Disease 2019 (COVID-19) epidemic has led to one of the most recession in history, and some feared that possible deflation could prevent SSA from releasing COLA. Social Security beneficiaries can breathe a little easier with the good news that they will actually receive an increase in 2021. The October 13 announcement from SSA called for 1.3% COLA to come January.
1.3% COLA is not enough
But there is also a downside.
With only 0.3% increase passed in 2017, 1.3% payout for the lowest positive COLA ever increased.
You might be thinking, “Hey, a 1.3% payment increase isn’t very high, but at least it implies a decrease in overall inflation.” Unfortunately, this is not the case for senior citizens whose social security program is designed to protect them.
The trailing-inflation rate for two of the most significant expenses for seniors – asylum and medical care services – for a period of 12 months – is growing by 1.3%. This means a loss of purchasing power for seniors in 2021. This would create an estimated 30% loss of purchasing power for Social Security income since 2000, according to an analysis by the Senior Citizens League.
The 1.3% COLA is not enough to actually offset the benefits of retired workers with the inflation they actually face.
Two MPs table more than double bills from next year’s COLA
Understanding the predicament that seniors are facing in the wake of the COVID-19 recession, two jurists – Rep. Peter DeFazio, D-Ore, and Rep. John Larson, D-Con. – Last week introduced the Emergency Social Security COLA for the 2021 Act.
The goal of the bill is simple: increase Social Security’s COLA by 3% in 2021. This is more than double the announced 1.3% COLA and out-of-hand shelter inflation (the senior-largest single expenditure).
DeFazio and Larsen have both called for the program to switch the inflation-related ticker of the consumer price index program from CPI-W to the elderly (CPI-E), even if they are not in the bill introduced last week. The CPI-W is naturally known as the inflationary tether of Social Security because it tracks the spending habits of urban and clerical workers, rather than seniors, who form part of the lions of beneficiaries. As a result, significant expenditures for retired workers are reduced in the COLA calculation, while less significant costs (eg, apparel and education) receive more weightage.
The CPI-E specifically monitors households’ spending habits with individuals 62 and older. Using CPI-E in place of CPI-W should lead to more accurate inflation measurements and more robust COLAs over time.
Will it pass Maybe only
The $ 64,000 question is whether the Emergency Social Security COLA for the 2021 Act will pass to Congress and be signed into law. answer? Probably right there.
As I wrote this just days after the bill was announced, there is a good chance that it would find its way to the floor for a vote in the Democrat-led House of Representatives where it was introduced. But a Senate vote is unlikely to find its way onto the Senate floor. Majority Leader Mitch McConnell stands in the way. Which makes this bill dead when it comes to the Senate.
The wildcard here is that we are 10 days away from Election Day, and increasing the social security cola for seniors can be seen as a feather of a hat for President Trump. This could put enough pressure on McConnell and other Senate Republicans to take action. Republican lawmakers have clearly not favored using CPI-E as the program’s inflationary tether, but a bill focused on a one-time 3% COLA is not completely out of the question.
At the moment, I am leaning towards this bill because it is not becoming law – but anything is possible.