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Social Security Update: New Bill Would Change COLA for Seniors
0 Share Newsweek is a Trust Project member See more of our trusted coverage when you search. Prefer Newsweek on Google to see more of our trusted coverage when you search. Millions of Social Security beneficiaries could see slightly larger annual benefit increases under a newly reintroduced bill that would temporarily change how cost-of-living adjustments (COLAs) are calculated.
The Social Security 2100 Act was reintroduced in Congress and would modify the formula used to determine annual COLAs from 2027 to 2036. While this would likely make Social Security payments better reflect the actual spending patterns of older Americans, particularly in healthcare, the legislation faces long odds in Congress, experts say.
“Improving COLAs and asking higher earners to contribute more are popular proposals. But this particular bill currently has very limited Republican support and has only been referred to committee,” Michael Ryan, a finance expert and the founder of MichaelRyanMoney.com, told Newsweek . “Its more realistic value may be as a negotiating marker. Pieces of it...such as using a more senior focused inflation measure, improving benefits for the oldest retirees or applying payroll taxes to more high-income earnings. Those could eventually become part of a bipartisan Social Security package.”
For many years now senior advocates have been calling to update the COLA process, as the current calculation method does not accurately capture the expenses most important to seniors , especially rising medical costs. Due to this, many retiree groups feel Social Security benefits have gradually lost purchasing power over time.
Currently, Social Security COLAs are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), an inflation measure that reflects spending by working households.
Each year, the Social Security Administration compares third-quarter CPI-W data with the same period a year earlier and applies the resulting increase to benefits.
The Social Security 2100 Act would maintain the existing CPI-W calculation but add a second inflation measure, the Consumer Price Index for the Elderly (CPI-E), which tracks spending patterns of Americans age 62 and older. Under the proposal, Social Security would use whichever index produces the larger COLA in a given year.
“Changing how COLAs are calculated by using seniors' actual spending patterns is a positive step,” Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek . “Allowing beneficiaries to receive the higher of the CPI-W or the CPI-E would provide a modest increase for many seniors. It also creates a more accurate measure of inflation by reflecting how retirees actually spend their money rather than relying solely on the spending habits of the current working population.”
Because older Americans generally spend a larger share of their budgets on health care, CPI-E has historically increased about 0.2 percentage points faster annually than CPI-W.
The impact of this law would likely be modest in any single year but could grow over time.
For example, someone receiving a $1,500 monthly Social Security benefit would receive roughly $3 more per month in the first year if CPI-E produced a COLA that was 0.2 percentage points higher than CPI-W. However, because yearly COLAs compound, those gains could accumulate over time. By the end of the 10-year period, benefits could be about 2 percent higher than under the current formula alone.
“Over the course of an entire retirement , 30 to 40 years or longer, that small fraction of a percent compounded yearly and paid out every month makes a cumulative difference,” Drew Powers, the founder of Illinois-based Powers Financial Group, told Newsweek . “Those few extra dollars per month keep our seniors one more step away from a tipping point where they run out of money completely and have to turn to a credit card or simply go without.”
The actual effect would vary from year-to-year depending on inflation trends. If CPI-W produced the higher adjustment in a particular year, beneficiaries would continue receiving that larger increase instead.
The CPI-E is generally understood to provide a more accurate picture of retiree expenses because it assigns greater weight to health care costs than the CPI-W.
Still, Thompson said a larger COLA doesn't solve the affordability problem that many seniors face.
“It simply helps retirees keep pace with rising costs,” he said. “I do think this bill has a reasonable chance of passing because retirees vote, and lawmakers know it. That said, it also increases long-term program costs without addressing the underlying solvency challenges facing Social Security.”
The legislation's path forward remains uncertain.
If enacted as written, the temporary COLA change would take effect for the next 10 years before reverting to the current formula.
“For many beneficiaries, this would more than likely translate into slightly larger COLAs over time, helping benefits keep up with the most important costs in retirement,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek . “However, it would also likely raise the amount of funding needed for Social Security to operate properly for current and future beneficiaries. Even if this proposal has substantial support from many beneficiaries and lawmakers, the odds of it passing are low until a solution can be reached for Social Security's coming funding shortfall.”
Contact Newsweek editors for this story: Jason Lemon and Anthony Murray .
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