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Social Security benefits barely rising in 2017

Written by Diane Archer

Social Security just announced the cost-of-living adjustment, COLA, for Social Security, and the news is bleak. Social Security benefits are barely rising. The typical older adult receiving benefits will see only a $4.00 increase in her monthly check. A new report from the National Academy for Social Insurance explains what you need to know about how Social Security benefits are calculated.

In short, the COLA is supposed to ensure that people receiving Social Security checks continue to have the same purchasing power from one year to the next notwithstanding price inflation. Older adults in particular need this inflation protection since their savings and other income tends to fall as they age, including their pensions, and their dependence on Social Security increases. But, the Social Security COLA is not delivering adequate inflation protection to older adults.

Here’s the history: The COLA was enacted into law in 1972 to guarantee people receiving Social Security annual inflation protection. But, the Bureau of Labor Statistics (BLS) produced only one Consumer Price Index or CPI to measure inflation. So, Congress used it to calculate the Social Security inflation adjustment even though it is not based on price inflation older adults experience. The CPI is based on the price inflation city workers and clerical workers experienced (28 percent of the population).

In 1978, the Bureau of Labor Statistics created a new CPI to cover all people living in cities, nearly nine in ten people in the country. It gave it a new name, CPI-U. But, Congress did not use this definition for Social Security cost-of-living adjustments. Congress uses it to calculate people’s individual income tax brackets and poverty levels.

In 1988, the Bureau of Labor Statistics created yet another experimental CPI index to cover spending of people 62 and older. It named it the CPI-E. But, again, Congress did not use this definition for Social Security cost-of-living adjustments.

Then, in 1999, the Bureau of Labor Statistics changed the way it measured inflation by assuming that when prices go up for a particular item people will buy a different similar item. For example, if the price of chicken goes up, people might buy pork instead. Through this change, the BLS measures for inflation reflect slower growth.  It’s called the CPI-W. As a result of this change, the CPI-W, the basis for Social Security cost-of-living adjustments from one year to the next, reports lower inflation than it otherwise would.

In 1999, the Bureau of Labor Statistics also began looking at a “chained” measure, one that takes into consideration that, when prices rise, people might make tradeoffs not only between similar items but between different needs. For example, if rent goes up, people might spend less on travel. This chained measure, further slows the rate of growth of the CPI by .3 percentage points. It’s called the chained CPI-U.

Republican leaders and others would like Congress to switch to this chained CPI-U for Social Security benefits, which would effectively reduce people’s monthly checks. And, it would further undermine the financial security of people receiving Social Security.

Others, including Social Security Works, want to expand Social Security. They argue that we need a better CPI-E, with a sample size that fairly represents all older adults. This CPI-E would best reflect the cost of living for older adults. It would give greater weight to health care cost increases since older adults use three times more health care than the rest of the population. And, older adults represent more than 60 percent of the people receiving Social Security benefits.

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4 Comments

  • Very good articles they help seniors to better understand the issues and what may be done to medicate the problems. It is a same the politicians never cut their Benifits. Why do they consider themselves any deferent than the general population. This has to change it is the right thing to do.

  • 3/10 OF ONE % = $3 RAISE /$1000 of Social Security monthly payments — How chintzy can the govt rules be for the poor???

  • So if the price of beef goes up so much that we’re forced to eat horsemeat, to them we’re no worse off. What Republican BS! But the Government always has enough money to let a billionaire like Trump pay no taxes while we pay through the nose for our Social Security benefits. Disgraceful.

  • 1999: “…if rent goes up, people might spend less on travel.”

    2016: …If rent goes up, people will end up out on the street.

    Along with medications, rent is the fastest rising expense for seniors. In the cities it no longer goes up by 10$ or 20$, but more like 200$ to 300$ (and even more). In Portland OR, the median rent for a 1 BR apartment is 1,400$ per month. More often than not it is higher upwards of 1,600$ to 1,700$ Even cramped studios close to good transit, shopping, and the like are renting for up to 1,200$. Try handling that on the average monthly benefit cheque. Don’t even think about renting a small 1 BR home (Air B&B is killing that market anyway).

    Subsidised Low/Fixed Income housing? Right, if you can hold out for another 3 to 5 years, or longer in some cities. The supply of low cost housing in many cities (Portland included) is far below the demand (which is growing due to rising rents and my generation retiring) and new units are not being built fast enough. Private developers are reluctant to construct and manage units that do not turn a profit and involve a lot of government red tape when “there’s gold to be found in them there young well paid upwardly mobile professionals.”

    Here in Portland low and fixed income residents have been and continue to be pushed from the inner neighbourhoods to the outer burbs by skyrocketing rents, far from jobs and services, where transit service and frequency is poor and in some areas, not even any sidewalks. In recent months, steep rental increases are beginning to be felt out in the burbs as well, forcing people to move even further out from the city centre.

    There seems to be no end in sight to skyrocketing rents here either as Portland has a unique limitation called the Urban Growth Boundary to prevent excessive sprawl. Basically future growth can only occur “upward” (more high density housing) instead of “outward” meaning property values will continue to increase, and along with that, rents. (Portland now has the fastest rising rents in the nation and no rent controls at all).

    Apologies, but an extra 3$, or 4$ a month just isn’t going to cut it. Crikey, that’s barely round trip bus fare just for one trip to the clinic in most cities, or a pound of hormone/antibiotic laced high fat content ground beef per month.

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