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
-
USPS Is Raising Prices for Holiday Shipping: Dates and Increases You Need to KnowWhat the USPS's $16 price hike means for your wallet and your small business.
-
July CPI Report Ignites a Risk-On Rally: Stock Market TodayMarket participants price out worst-case scenarios for tariffs and inflation and will now turn their attention to employment and growth.
-
USPS Is Raising Prices for Holiday Shipping: Dates and Increases You Need to Know
What the USPS's $16 price hike means for your wallet and your small business.
-
Don't Be a '98 Pound Weakling' Just Because You're AgingCharles Atlas's tips to the '98-pound weakling' might be the only comic book ads that actually paid off. Swap the X-ray glasses for this healthy habit.
-
For Savers Who Hate Surprises, This Strategy DeliversThis approach gives you peace of mind, regardless of whether rate cuts happen.
-
Are You Supporting Multiple Generations in Retirement?Here’s how to support your parents and your adult children without sacrificing your retirement.
-
Should You Buy a Second Home When You Retire?Buying a second home in retirement, especially with sufficient savings, can enhance your lifestyle or serve as a smart investment. But it requires careful planning.
-
What the OBBB Means for Social Security Taxes and Your Retirement: A Wealth Adviser's GuideFor Americans in lower- and middle-income tax brackets, the enhanced deduction for older people reduces taxable income, shielding most of their Social Security benefits from being taxed.
-
Financial Planner vs Investment Manager: Who's the Better Value for You?When markets are shaky, who do you trust with your money? A recent study provides useful insights into the value that different financial professionals offer.
-
How to Navigate Your Medicare Advantage Plan in a DisasterIf you're a Medicare Advantage member in an area that has been impacted by a disaster, you might be worried about access to care and medicine. Here's what you need to know.
