POLITICS
19/10/2016 5:06 AM IST | Updated 19/10/2016 9:20 PM IST

Social Security Beneficiaries Are Getting A Modest Raise -- But Many Say It's Not Enough

The price index used to calculate benefits does not reflect seniors’ unique costs, critics argue.

Charles Dharapak/ASSOCIATED PRESS
Carolyn Colvin, acting Social Security commissioner, is seen at a 2013 news conference. The Social Security Administration announced this week that benefits will rise 0.3 percent in 2017.

Social Security benefits will rise by 0.3 percent in 2017 to account for inflation, the government announced Tuesday. 

Although this marks the first cost-of-living adjustment, or COLA, in two years, a chorus of mostly progressive retirement security advocates say the increase is not enough to keep pace with the living costs of the more than 60 million Americans who receive benefits.  

“Seniors and disabled veterans deserve a fair cost-of-living adjustment to keep up with the skyrocketing cost of prescription drugs and health care,” Sen. Bernie Sanders (I-Vt.) said in a statement. “Unfortunately, the increase announced today doesn’t come close to doing that.”

The Alliance for Retired Americans, Social Security Works and the National Committee to Preserve Social Security and Medicare ― stalwarts in the fight to expands benefits across the board ― likewise all released statements condemning the new COLA as inadequate.

Some seniors react to the COLA as if it were a policy crafted by lawmakers, expressing anger at elected officials when, as was the case this past year, they do not get a yearly increase.  

In reality, the size of the COLA is not in politicians’ hands. Designed to keep inflation from eroding benefits, the COLA is automatically based on growth in the consumer price index designed for wage earners and clerical workers, a metric known as the CPI-W. A year-over-year rise in the CPI-W means an increase in benefits for Social Security recipients.

The COLA for 2017 was small, largely due to the ongoing slump in oil prices, which has kept consumer expenses down.

However, that doesn’t mean progressive groups are engaging in empty political posturing. To be sure, they are using the meager COLAs to advance their larger argument that Social Security benefits are too modest, particularly in light of the growing role the program plays in providing retirement security.

But these organizations, and many sympathetic economists, also argue that the CPI-W genuinely does not reflect the budgets of the seniors who make up the bulk of Social Security beneficiaries.

Instead they want to tie benefits to the consumer price index for the elderly, or CPI-E, an experimental index that gives more weight to the health care and housing costs that typically account for a larger share of older Americans’ budgets. The CPI-E also puts less value on transportation costs, since seniors are less likely to have to commute to jobs.

“Congress must expand earned Social Security benefits and change the formula used to calculate future COLAs to the Consumer Price Index for the Elderly,” Rich Fiesta, executive director of the Alliance for Retired Americans, said in a statement.

Sanders has introduced legislation that would index Social Security benefits to the CPI-E.

Under the present formula, the average Social Security beneficiary will see their benefits rise about $4 a month in 2017, or $45 a year. As of August, the average annual Social Security payout was $14,857.

If the COLA for 2017 had been based on the CPI-E, however, benefits would have gone up by 1.5 percent, according to the federal government’s Bureau of Labor Statistics. For the average beneficiary, that would have amounted to a $19 monthly increase and a $223 annual increase.

And if the CPI-E were the basis for a cost-of-living adjustment in 2016 and 2017, benefits would have risen 2.1 percent over the two-year period, rather than the 0.3 percent they have gone up under the current formula. (There was no COLA in 2016.)

There is a randomness, and the randomness really hurt seniors this year.Dean Baker, Center for Economic and Policy Research

Of course, those years might be exceptions. And as an experimental price index, the CPI-E does not yet offer a reliable point of comparison. It weighs ordinary expenses in other price indices differently, but it still does not measure a basket of consumer goods designed specifically to reflect the budgets of older Americans.

Dean Baker, a co-director of the Center for Economic and Policy Research, a progressive think tank, believes the Bureau of Labor Statistics should invest in turning the CPI-E into a price index as sophisticated as its counterparts.

“If you want an accurate index, we could construct a full elderly index,” Baker said. “We are indexing a lot of money, so if we are concerned about doing it right, let’s do an elderly index for two or three years.”  

If the CPI-E did not show a meaningful difference from the CPI-W over that period, then the current index could remain in place, Baker reasoned. But if the CPI-E proved substantially different, he said, it would be worth adopting.

Short of that, the government might consider adopting the consumer price index for all urban consumers, or CPI-U ― likely a more accurate reflection of seniors’ expenses, since it is not focused exclusively on the budgets of gainfully employed people.

Ellen Pleasant, a 74-year-old retired government worker in North Carolina, struggles to make ends meet on a modest monthly Social Security check and an even smaller pension benefit for state workers. She has declared bankruptcy twice in recent years, because she was not able to make her mortgage payments and “do the things I need to live.”

Working with progressive advocacy groups, Pleasant submitted a question to the Open Debate Commission for the second presidential debate about whether the candidates “support expanding, and not cutting, Social Security’s modest benefits.” Pleasant’s query was the third most popular question based on readers’ votes, but the debate moderators never raised it, despite an assurance that they would consider the most popular submissions.

Nonetheless, Pleasant said her living costs are not rising noticeably ― aside from her mortgage payments and related taxes and fees, which she believes may go up.

“Everything seems to be the same,” she said.

Pleasant’s experience speaks to the way the COLA’s effects vary greatly between different people, regions and years. Significant changes in prices in the third quarter of the year, for example, can result in COLAs that are higher or lower than they would have been if they were based on inflation in other quarters, or an annual average. 

As a result of the arbitrary nature of this system, there are undoubtedly seniors who suffer, Baker acknowledged.

“There is a randomness, and the randomness really hurt seniors this year,” Baker said. “They got a bad break.”

It tends to even out in subsequent years, he noted, but that is likely cold comfort for many older Americans experiencing pain now.

“People whose drug prices went up are not looking at the data,” he concluded. “I can’t blame someone for that.”