Here’s the good news about your Social Security cost of living adjustment (COLA) for 2017: there’s going to be one, unlike last year when the COLA was zero. But here’s the bad news: this year’s increase is so tiny, at 0.3%, you won’t even notice it. Some experts have calculated that the average Social Security beneficiary may see a whopping $5 increase in benefits. Before you get too excited, as this article recently published by the Reuters news service points out, the entire increase is almost certainly going to disappear into higher premiums for Medicare.
As Reuters puts it, “The Social Security COLA has lacked fizz for much of the past decade,” having remained less than 2 percent in every year but one since 2009. For three years the COLA has been non-existent. This puts a burden on seniors, many of whom are on fixed income (half of Medicare recipients live on less than $24,150 per year, said a 2014 report from the Kaiser Family Foundation). As any senior will tell you, prices definitely do seem to be on the rise, so why doesn’t the Social Security COLA reflect actual market conditions?
Turns out that the culprit is the law that sets the standard by which the cost of living adjustment is calculated. Social Security COLA is determined based on what’s called the CPI-W, which is shorthand for the Consumer Price Index for Urban Wage Earners and Clerical Workers. This index includes a measure of several costs for goods and services purchased by average working men and women, and it is weighted accordingly. For the past several years, one factor has been chiefly responsible for the CPI-W remaining suppressed: low energy prices. According to one expert quoted by Reuters, Max Gulker from the American Institute for Economic Research, “If you look category by category at prices that are up or down, energy is what is pulling things down overall.”
The trouble for seniors, especially retirees on Social Security, is that they benefit far less from low energy prices because they tend to drive less. Low energy costs are less of a boon to older Americans than to most working adults. On the other hand, seniors spend more than twice as much on medical coverage as the rest of the population, research shows, and yet skyrocketing medical costs are not adequately reflected in the CPI-W. Max Gulker told Reuters that “The categories that are really rising are healthcare and education costs.”
As a response, the experts at the Bureau of Labor Statistics (the ones who calculate the CPI-W) have developed an experimental index called the CPI-E, or Consumer Price Index for the Elderly. This index is weighted toward the things seniors spend their money on, such as health care. Advocates for seniors are pushing for the adoption of a fairer standard such as the CPI-E for calculating the Social Security COLA, but so far without much success. (Speaking of medical costs, the Reuters article explains in some detail how Medicare premiums for Part B and Part D will be going up this year. Since the law protects current beneficiaries from having their Social Security benefits reduced, and since the cost of living adjustment is so measly, most of that higher Part B cost will be borne by new enrollees. Again, click here to read it.)
So what’s the long-term solution? Reuters suggests (somewhat optimistically) that “the COLA mess” has to be part of a broader political conversation about Social Security reform. Other more short-term proposals include one by Senator Elizabeth Warren (D-Mass) to provide a one-time “emergency COLA” of 3.9 percent, which she says equals the average raise given to top CEO’s last year. In today’s political climate, who can say how or when these ideas will be debated? But it does suggest that seniors ought to be using their considerable political clout to force policy-makers from both parties to get serious about a system that clearly needs to be reexamined.
Do you have questions about Social Security or Medicare? We invite you to call our office any time. Our experienced professional staff can help you decipher your choices and make the decisions that are best for you. In fact, no matter what your questions about retirement, from housing choices to financial planning to legal affairs to family communications, AgingOptions will be your best resource. We offer a unique approach to retirement planning that we call LifePlanning – an approach so comprehensive that it encompasses all these needs we’ve just listed, and many more. Don’t head into retirement without a plan, and don’t give up because these decisions seem so complex! With us as your guide, together we can navigate through the circumstances that are unique to your situation and create the perfect plan for you.
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(originally reported at www.reuters.com)