“COLA” “COLA” “COLA.” Anyone following the continuous developing news about the future of Social Security in the United States knows this word all too well.
So what’s the problem exactly?
The problem is COLAs aren’t keeping pace with the cost increases that seniors are experiencing is
because of the method used to calculate these periodic raises.
Social Security’s annual raise is determined by changes to the Consumer Price Index for Urban Wage
Earners and Clerical Workers (CPI-W). The spending habits of this group don’t mirror the actual
spending retirees do. And the areas where seniors devote most of their income — housing and
healthcare — have seen prices rise much faster than inflation.
Although there have been some efforts to change the formula to a different price index designed to more
closely mirror spending among the elderly, this is politically difficult. And it would only serve to make
Social Security benefits costlier at a time when there are already concerns about its long-term financial
Sadly, with many economists predicting that government stimulus spending will lead to a massive
increase in inflation, things could get even worse for seniors in the coming years. And rising inflation also
harms retirees by reducing the buying power of their savings, compounding the budgeting difficulties that
seniors can experience when the buying power of their benefits falls.