Congress Considering New Bill To Boost COLAs For Retirees
For years, retiree advocates have highlighted that the current formula for calculating Cost of Living Adjustments (COLAs) does not accurately reflect the living expenses of most seniors. A major issue is that Americans aged 65 and older spend about twice as much on healthcare-related expenses compared to younger individuals.
According to the US Department of Health and Human Services, from January 2022 to January 2023, over 4,200 prescription drugs saw price increases, with nearly 50% of these hikes surpassing the overall inflation rate. Consequently, seniors face a continuous erosion of purchasing power due to healthcare inflation, unlike their younger, healthier counterparts.
How COLAs Are Usually Calculated
The Bureau of Labor Statistics (BLS) of the Department of Labor determines the COLA by comparing the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for July, August, and September of the current year to the average CPI-W for the previous year. This percentage change sets the annual COLA for Social Security and federal pension payments.
The Consumer Price Index for the Elderly (CPI-E)
Retiree advocates argue that the Consumer Price Index for the Elderly (CPI-E) offers a more accurate reflection of price changes for Americans aged 62 and older. According to a Congressional Research Service report, the CPI-E is generally higher than the CPI-W. For instance, the COLA for 2024 would have been 4% instead of 3.2% if based on the CPI-E, increasing the average Social Security benefit from $1,907 to $1,922. For retirees on fixed incomes, every percentage point in COLA matters.
“With seniors spending more on prescription drugs and healthcare services not covered by insurance, having a financial strategy to manage these costs once you’re no longer working is crucial.”
Boosting Benefits and COLAs For Seniors Act (S-3974)
The Boosting Benefits and COLAs for Seniors Act (S-3974) proposes using the CPI-E to calculate COLAs for Social Security, extending this to COLAs for FERS, CSRS, and disability benefits. Introduced in Congress in March 2024, the bill is expected to go into committee before votes in the House and Senate.
As seniors spend more on prescription drugs and uncovered healthcare services, it’s essential to have a financial plan to mitigate these expenses. Otherwise, you risk depleting your Thrift Savings Plan (TSP) faster and potentially outliving your savings.
To learn more, consult an FRC® trained advisor who can help you inflation-proof your retirement income.
