New changes to Social Security benefits announced

There is some news that American seniors should be aware of, as a new bill could dramatically change their Social Security benefit payments. Representative Ruben Gallego, a Democrat from Arizona, has filed a newly suggested law that could alter the formula used to determine the annual cost of living adjustment (COLA) to Social Security payments, perhaps increasing checks for seniors and other recipients.

An increase in benefits or income that a person receives to counteract the impact of inflation is known as the cost of living adjustment (COLA). When the cost of products and services rises, a person’s purchasing power decreases if their income remains constant, which means their pay is lower than what it would cost to live. A cost-of-living adjustment is therefore intended to compensate for and offset this shift.

Social Security benefit payments include COLA increase every year

To guarantee that recipients of Social Security benefits can maintain their quality of life after inflation, the Social Security Administration (SSA) adjusts for the cost of living each year. Every third quarter of the year, it releases its annual COLA. This often corresponds with the yearly shift in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). 

However, there is currently a dispute concerning the cost of living adjustment (COLA) formula and how it has not been adequate, particularly for seniors who struggle to afford their daily living expenses due to increasing medical bills. The Boosting Benefits and COLAs Act is a proposed law that would amend Title II of the Social Security Act to require the Commissioner of Social Security to calculate the annual COLA using the Consumer Price Index for Elderly Consumers (CPI-E) rather than the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). 

COLA does not completely consider inflation and its impact on Social Security benefit payments

According to Representative Ruben Gallego, the present method of calculating the yearly COLA does not take into consideration the inflation in healthcare expenditures that seniors experience. He also highlighted that the percentage change in the CPI-W between the third quarters of the prior and current years is used to calculate the yearly COLA since this calculation can’t exist if there is no rise. 

In addition, Social Security benefits are supposed to be adjusted to keep up with inflation. For instance, in 2024, the COLA was 3.2 percent, a far lesser boost than the 8.7 percent adjustment in the year before. As a result, Gallego argues that this approach fails to take into account the unique costs that seniors, who are not like the general American population, must bear. 

In other words, retired workers bear a greater burden than younger people from medical expenses; this is represented in the CPI-E but not always in the CPI-W. The proposed law, if approved, would take effect for cost-of-living computation quarters ending on or after September 30, 2024, when decisions are made.

What should seniors consider about COLA and their Social Security benefit payments?

If you are a senior and receive your monthly Social Security benefit payments, here are some tips you may want to consider about the cost of living adjustment:

• Understand how inflation impacts your COLA. Cost-of-living adjustments are made to your salary and Social Security benefits over time due to inflation, which is normal and ongoing.
• Think about relocating to an area with a low cost of living. In an area with a low cost of living, your salary usually goes farther than in one with a high cost of living.
• Use a cost-of-living calculator, if possible. To estimate your adjustments, use a cost-of-living calculator, which you can find online. This can be done every year when evaluating inflation or relocating to a different area.
• Create personal budgets using COLA. When you move or start a new job, knowing your cost of living can help you plan your expenses and budget for the cost of everyday goods and services.