A new bill could result in an important change in Social Security cost of living adjustments (COLAs) that could benefit retirees. The Boosting Benefits and COLAs for Seniors Act, proposed by Rep. Ruben Gallego (D-Ariz.) and Sen. Bob Casey (D-Pa.), aims to “protect and expand benefits for older adults who rely on them” by making significant changes to the COLA calculation.
The bill claims that many older adults struggle to afford necessities, like food, medication and clothing, because current Social Security benefits have not kept up with rising costs.
“Rising costs mean Arizona seniors on Social Security see the real value of their benefits decrease,” Gallego said in a statement. "My new bill puts more dollars in the pockets of Social Security recipients to pay their bills, get their medications and pay for housing.”
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Change in Social Security COLAs
The COLA is currently based on the Consumer Price Index for Urban Wage Earners (CPI-W), which reflects everyday spending an individual would face, including expenses for food, housing, transportation, consumer goods, etc.
Under the new bill, however, the COLA would be based on the Consumer Price Index for Americans aged 62 or older (CPI-E), as this price index reflects the costs incurred by older adults more accurately. Medical expenses, an increasing burden on older adults, are weighted more heavily in the CPI-E than in the CPI-W.
Keeping up with rising healthcare costs
According to data from the U.S. Department of Health and Human Services, out-of-pocket healthcare expenditures for individuals age 65 and older rose 41% from 2009 to 2019, going from $4,846 to $6,833. Older individuals paid significantly more than the total population, which spent an average of $5,193 in out-of-pocket costs in 2019. Overall, older Americans spent 13.6% of their total expenditures on health, compared to just 8.2% among all consumers.
“The current COLA formula doesn’t accurately account for the inflation seniors face, especially in health care,” Roman Ulman, president of AFSCME Arizona Retirees Chapter 97, said in a statement. “It’s important that the COLA reflects how inflation impacts seniors so that we can pay our bills and our monthly Social Security checks stay strong.”
Along with directing the Social Security Administration (SSA) to adjust benefits based on CPI-E rather than CPI-W (if CPI-E would result in a larger increase in benefits), the Boosting Benefits and COLAs for Seniors Act would also direct the Bureau of Labor Statistics to calculate and publish the CPI-E every month.
According to Newsweek, the proposed legislation, if passed, "would apply to determinations made with respect to cost-of-living computation quarters ending on or after September 30, 2024." However, some experts, including Richard Johnson, senior fellow and director of the program on retirement policy at the Urban Institute, don't see the bill going far in Congress.
“This has been talked about for at least a decade," Johnson tells MarketWatch. "If it were part of a broader package of Social Security reforms, maybe." He claims these changes would cost more and add budgetary stress to the Social Security system.
Related Content
-
Seven Local Social Security Offices Are Suspending In-Person ServicesA departure from closing locations, seven local Social Security offices will temporarily stop all in-person service and will only be available by telephone.
-
The Explosion of New AI ToolsThe Kiplinger Letter Workers and consumers soon won’t be able to escape generative AI. Does that mean societal disruption and productivity gains are right around the corner?
-
Seven Social Security Field Offices Are Suspending In-Person ServicesA departure from closing locations, seven local Social Security offices will temporarily stop all in-person service and will only be available by telephone.
-
Four Roth IRA Pitfalls Your Adviser May Not Tell You AboutYou may not be bound for Mordor, but Roth IRA pitfalls could upend your retirement if you're unaware of them.
-
This Underused IRA Option Offers Tax Benefits and Income SecurityLooking to avoid running out of money in retirement? Consider longevity protection provided by a QLAC as a component of your retirement income plan.
-
These Four Books Explore How to Leverage Our Outrage PositivelyThe authors offer some powerful tools to help us find solutions to discord rather than remaining silent or blowing up in anger.
-
Social Security New Rule: Overpayments Must Be Paid Back 100%. Why It MattersAs of March 27, the SSA will require beneficiaries who have been accidentally overpaid to repay 100% of the money, reversing a previous policy that allowed for only 10% recoupment.
-
Medicare and Medicaid Employees Offered New Buyouts: What You Need to KnowFederal HHS workers who inspect food, research diseases and administer Medicare and Medicaid are offered $25,000 buyouts
-
What Is a Portable Retirement Plan and Should You Have One?Portable Retirement Plans allow employees to take their retirement savings with them when they change jobs without losing their accumulated savings.
-
Financial Pitfalls to Avoid in Your 30s, 40s and 50sAs you pass through each decade of working life and build wealth for retirement, watch out for the financial traps that can hinder your progress.
