The anticipated cost of living adjustment (COLA) increase for Social Security beneficiaries is projected to fall short of what retirees need, according to current estimates.
Certified Financial Planner Matt Frankel has raised concerns that the latest COLA estimate, which was recently adjusted from 2.57 percent to 2.63 percent by the Senior Citizens League, will not sufficiently address the financial difficulties faced by America’s senior population. Frankel identifies two key reasons for this inadequacy.
Social Security benefits, administered by the Social Security Administration (SSA), are typically adjusted annually to align with inflation. This adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) during the third quarter of the year, covering July, August, and September. The purpose of the annual increase is to ensure that benefits keep up with the rising costs of essential needs, such as housing, food, and healthcare.
However, Frankel highlights a major issue for Medicare Part B enrollees, noting that premiums for this program have consistently risen faster than COLA increases. For instance, while the COLA for this year is expected to increase by only 3.2 percent, Medicare Part B premiums have risen by 5.9 percent. He also recalls the significant 14.5 percent increase in Medicare Part B premiums two years ago, one of the largest hikes in the program’s history.
This ongoing trend of Medicare Part B premiums outpacing COLA increases has created a shortfall for retirees. Frankel points out that even the substantial 8.7 percent COLA increase in 2023 was insufficient to offset the high inflation during the latter part of the coronavirus pandemic.
He emphasizes that Medicare Part B premium growth has consistently outstripped COLA adjustments, leaving retirees with less disposable income each month as their Social Security benefits fail to keep up with rising costs.
Addressing the Social Security Shortfall
To tackle this issue, Frankel, along with many other experts, advocates for a change in how the COLA is calculated. He suggests using the Consumer Price Index for the Elderly (CPI-E), which specifically measures price changes based on the spending habits of Americans aged 62 and older—the earliest age at which individuals can begin receiving Social Security retirement benefits.
Frankel argues that adopting the CPI-E would more accurately reflect the inflation experienced by retirees, leading to more appropriate benefit adjustments. He asserts, “Social Security beneficiaries are not getting the increase that would really benefit them.”
For example, in 2024, using the CPI-E to determine the COLA would have resulted in a 4 percent increase in benefits, compared to the 3.2 percent increase that was implemented in January.
According to Frankel, “In most recent years, it would have been a better and more accurate way to calculate inflation for retirees. The 2.6 percent expected for this year’s cost-of-living adjustment is not even based on the best measure of inflation for seniors.”
An SSA spokesperson confirmed to Newsweek that the current method for determining the COLA is mandated by law, which bases the adjustment on the percentage increase in the CPI-W from the third quarter of the previous year to the third quarter of the current year.
The idea of changing the COLA calculation method has been proposed before. Earlier this year, Democratic lawmakers introduced the Boosting Benefits and COLAs for Seniors Act.
This legislation would adopt the CPI-E as the basis for measuring Social Security benefit increases, which proponents argue would better reflect the actual inflation experienced by seniors.
Conclusion
The current COLA adjustments are not sufficient to meet the financial needs of retirees, particularly when considering the rising costs of Medicare Part B premiums. While efforts are being made to address these shortcomings, such as the proposal to use the CPI-E for calculating Social Security benefits, significant changes are still needed to ensure that seniors receive adequate support.
Q1. What is the COLA increase for Social Security in 2024?
A. The COLA increase for Social Security in 2024 is projected to be 2.63 percent, but experts believe it will fall short of addressing the financial needs of retirees.
Q2. Why is the COLA increase considered inadequate?
A. The COLA increase is considered inadequate because it does not keep pace with rising costs, particularly Medicare Part B premiums, which have consistently outpaced COLA adjustments.
Q3. How have Medicare Part B premiums impacted retirees’ finances?
A. Medicare Part B premiums have increased at a faster rate than COLA adjustments, leaving retirees with less disposable income each month.
Q4. What legislation has been proposed to improve COLA calculations?
A. The Boosting Benefits and COLAs for Seniors Act has been proposed, which would use the CPI-E as the basis for calculating Social Security benefit increases.
Q5. What is the SSA’s stance on the current COLA calculation method?
A. The SSA follows the law-mandated method for determining COLA, based on the CPI-W, but there is growing support for changing this to better reflect the inflation experienced by seniors.
