You may not realize it, but for about 65 million Americans it is the most important time of the year. This is because October is when the Social Security Administration announces all its updates for next year.
Once the veil closes in 2020, we will witness more than half a dozen changes in Social Security, including an increase in the full retirement age of individuals born in 1959. But, the biggest change, and one of the most valued of the more than 46 million retired workers, is the live adjustment of cost.
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Social Security beneficiaries have extended their way
In its simplest form, the CAO is an “increase” that has been passed to all social security beneficiaries to account for inflation over the past year. I say increase with quotation marks because it does not increase in the true sense of the word. Cola is not designed to allow Social Security beneficiaries to proceed. Instead, it allows recipients ’social security income to remain dynamic with rising prices of goods and services over time.
October October is the most important month because the CLA calculation of Social Security is only a factor of reading from the consumer price index of urban wage earners and clerks (CPI-W) in the third quarter (July to September). The Bureau of Labor Statistics reports September inflation data during the second week of September, so it becomes part of the last puzzle needed to calculate social security cola.
The Coronavirus Disease 2019 (COVID-19) epidemic has led to the wildest recession in history, and some fear that potential depletion will prevent SSA from issuing CAOL. With the good news that they will actually increase in 2021, Social Security beneficiaries can breathe a little easier. An October 13 announcement from the SSA called for 1.3% cola in January.
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1.3% cola just isn’t enough
But there is also a negative.
Payments have increased by 1.3% for the second-lowest positive cola of all time, passing only a 0.3% increase in 2017.
You might think, “Hey, the 1.3% increase in payments isn’t great, but at least it means overall inflation is furious.” Unfortunately, this is not the case for senior citizens for whose protection the Social Security program is designed.
The two most important costs for the elderly – shelter and medical care services – have outpaced uncontrolled inflation over the past 12-month period, compared to 1.3%. This means a loss of purchasing power income for seniors in 2021. According to an analysis by the Senior Citizens League, an estimated 30% of social security revenue from 2000 could be lost on purchases.
The 1.3% cola is not enough to realize the real benefits of inflation for retired workers, which they are actually facing.
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The two legislators just introduced the bill for more than double next year’s cola
Realizing the tragedy seniors are facing in the wake of the COVID-19 recession, two legislators – Rep. Peter Defazio, D-Ore., And Rep. John Larson, D-K Conn no. – Last week introduced the Emergency Social Security Cola for the 2021 Act.
The goal of the bill is simple: to increase the Social Security COL to 3% by 2021. It will double the declared 1.3% CLA and manual shelter inflation (the highest cost for seniors).
Both Defazio and Larsen have called for the program to shift from CPP-W to the Consumer Price Index (CPI-E) for inflation, even though it was not in the bill introduced last week. The CPI-W is inherently flawed as an Social Security inflation tether because it finds a habit of spending on urban and clerical workers instead of seniors, making it the lion’s share of beneficiaries. As a result, significant costs for retired workers are underweight in the CLA calculation, while less significant costs (e.g., wear and education) gain more weight.
CPI-E specifically monitors the spending habits of households with individuals aged 62 and over. Using CPI-E instead of CPI-W should lead to more accurate measurement of inflation and stronger colas over time.
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Will it pass? Probably not
The question is whether the Emergency Social Security Coal for the 2021 Act will be passed by Congress and signed into law. The answer? Probably not.
As I write this just days after the bill was announced, there is a good chance that it will reach the floor in the Democrat-led House of Representatives to get a vote, where it was introduced. But Senate Majority Leader Mitch McConnell is unlikely to reach the Senate floor for suffrage. The bill is dead when it reaches the Senate.
The wildcard here is that we are even 10 days away from election day, and the growing CLA of social security for seniors can be seen as a feather in President Trump’s cap. That could put enough pressure on McConnell and other Senate Republicans to make it work. Republican lawmakers will not explicitly use the CPI-E as a program’s inflation tatter, but a one-time bill focused on 3% cola is not out of the question.
For the moment, I’m leaning towards this bill not becoming law – but anything is possible.
