Tag: CPI

There’s welcome news for Social Security beneficiaries. In 2022, Social Security benefits will increase nearly six percent. That means that the typical person receiving Social Security benefits will receive an additional $92 a month.

Social Security is the primary income of three out of five beneficiaries aged 55 and older. Social Security is virtually the only income of one third of them. Our Social Security system lifts more than 21 million Americans—including over a million American children—out of poverty and lessens the depth of poverty of millions more.

As essential as Social Security is in good economic times, it has been even more so during the pandemic. Because Social Security beneficiaries are so at risk, their modest benefits—retirement benefits average less than $1,600 a month—have been stretched even thinner during the pandemic. To keep distance from others, they have incurred costs for deliveries of medicine and food, as well as additional medical costs if they become sick.

One of Social Security’s most important features—not found in its private sector counterparts—is that all benefits are automatically adjusted every January to offset the effects of inflation. The automatic adjustment for 2022 will be 5.9 percent, or an average of $92 a month. The inflation offset is much needed. Many older adults, people with disabilities and all other Social Security beneficiaries have seen their costs increase more than 5.9 percent over the last year. For example, prescription drug prices rose an average of 16 percent in just the first seven months of the year.

Large as the announced 5.9 percent increase in benefits may appear on paper, it is not enough for seniors and people with disabilities on fixed incomes to make ends meet. Social Security undermeasures the inflation older adults and other Social Security beneficiaries experience. That is because the cost of living adjustment for Social Security is based on inflation experienced by workers, not by retirees and people with disabilities who are unable to work.

That index, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), was the only measure that the government produced in 1972, when Congress wisely decided to automatically adjust Social Security benefits every year to prevent their erosion. Because that measure was the only one available, that was the best Congress could do. It was better than nothing.

But workers and the public more generally have significantly different spending patterns from Social Security beneficiaries and, therefore, experience significantly lower inflation. Older adults and people with disabilities spend more on health care and long-term care—where prices continue to rise faster. They spend less on clothing, recreation, the latest technology, and other items—where prices tend to rise more slowly—than younger, healthier Americans.

Many members of Congress recognized the obvious shortcomings of the CPI-W when applied to Social Security. In 1987, our policymakers instructed the Bureau of Labor Statistics (BLS) to produce an index measuring the cost of living of the elderly. In response, BLS developed the Consumer Price Index for the Elderly (CPI-E), but Congress has not yet applied it to Social Security. It’s long past time to fix that.

CPI-E is part of President Joe Biden’s plan to update and expand Social Security. It is the right policy. It also, according to numerous polls, represents the will of the people. It is included in numerous bills to protect and expand Social Security, pending in Congress or soon to be introduced.  One of those bills is the Social Security 2100 Act, sponsored by Representative John Larson (D-CT), Chairman of the Social Security Subcommittee, and cosponsored by  90 percent of his fellow Democrats.

Chairman Larson and his fellow Democrats recognize how modest Social Security’s benefits are by virtually any measure.  To be clear, substituting the CPI-E for the current CPI-W is not a benefit increase, but an update. It is a better measure to ensure that benefits will not erode over time. It is designed to allow beneficiaries to tread water, instead of sinking, as they now are. In addition, Democratic policymakers want to increase Social Security’s modest but vital benefits.  But, as a fundamental matter, an accurate cost of living adjustment is essential to keep today’s modest benefits from eroding.

An accurate adjustment is essential for everyone, but it is particularly important for women and Hispanics. The erosion of benefits from inadequate adjustments compounds over time and those two groups, on average, have the longest life expectancies.

No Republicans have either cosponsored one of the many pending bills or introduced their own. So far, Republicans have not supported the efforts to expand Social Security.

Congress should also adopt the CPI-E for other federal programs for older adults and people with disabilities. These include military retirement benefits, veterans’ compensation, civil service retirement benefits and the Supplemental Security Income benefits, which also still use the CPI-W.

After lifetimes of work, Americans have earned their Social Security. It is well past time they get a fair raise. Once Americans begin to receive their earned Social Security, they should be able to rely on the fact that those benefits will not erode as they age, but will maintain their purchasing power, even if they live to 100 or older.

Here’s more from Just Care:

• Medicare Open Enrollment: Don’t trust insurance agents
• Social Security: Always there for you in a crisis
• Expand Social Security, don’t means test it
• HIPAA and why you need a health care proxy
• Free and low-cost ways to address hearing loss

Alessandra Malito reports for MarketWatch that people receiving Social Security benefits might not see an increase in their checks in 2021. Any increase is based on the consumer price index (CPI), which did not rise in the first four months of this year. But, we won’t know whether Social Security benefits will increase until October.

For years, advocates have called for a change in the way Social Security benefit increases are calculated. Increases in Social Security benefits should track increases in typical spending for older adults and people with disabilities who rely on Social Security benefits. For example, older adults tend to spend more on health care than younger people. That measure is called the CPI-E. But, instead, the Social Security benefit increase is tracked to prices that are not as likely to affect people receiving Social Security benefits as much, such as oil prices.

As a result, Social Security checks have risen at a far slower pace than the cost of goods that older adults typically buy. Over the last 20 years, Social Security benefits have grown by 53 percent. But, the cost of goods older adults tend to purchase has practically doubled, up 99.3 percent.

Average prescription drug spending, a major expense for many older adults, has nearly quadrupled over the last 20 years, at $3,875.76 in January 2020 from $1,102 in 2000. At the same time, Medicare Part B premiums have nearly tripled.

Big health care price increases, which the COLA adjustment for Social Security does not adequately take account of, are largely responsible for the fact that the purchasing power of Social Security benefits has fallen 30 percent in 20 years.

We can and should expand expand Social Security. We can afford it. The majority of the public supports it. And, it makes sense as a public policy priority in order to ensure the financial well-being of older adults and their families.

Here’s more from Just Care:

• Coronavirus: Likely to worsen a retirement crisis
• Coronavirus: The importance of health care proxies
• Coronavirus: Have a plan if you get sick
• Free local resources to help older adults
• Five exercises to improve balance for safety and health