Social Security And Inflation

Since 1975, the Social Security Administration has adjusted benefit payments to account for inflation. The goal is to have what recipients receive to keep pace with inflation. For the past decade, these inflation adjustments have been modest, as you can see in the chart. In 2009, 2010 and 2015, there was no increase, and many of the other raises were 2% or less.

The Social Security Administration has announced that the benefit Social Security recipients receive will increase by 5.9% in 2022. That will be the largest one-year increase since high-inflation days of the early 1980’s.

Social Security increases are tied to the CPI-W, the Consumer Price Index for Urban Wage Earners and Clerical Workers. Some economists believe that the CPI-W tends to undercount the cost of living increases that many people experience, and that is especially true for seniors, whose budget is more closely tied to housing and health care costs, and less to food, apparel, transportation and recreation.

A new bill in Congress, the Fair COLA for Seniors Act of 2021, proposes to change Social Security’s measure of inflation from CPI-W to CPI-E, the Consumer Price Index for the Elderly, which the Bureau of Labor Statistics has been calculating since 1985. This shift, endorsed by the Biden Administration, would have resulted in a 1.4% upward adjustment last year (vs. the 1.3% figure used by the Social Security Administration), a 1.9% increase in 2020 (vs. 1.6%), 2.8% in 2019 (vs. 2.6%), 2.1% in 2018 (vs. 2.0%), and a much bigger increase in 2017, from 0.3% up to 1.5%. Comparing the two measures of inflation over time, economists estimate that over 25 years, the CPI-E cost adjustments would push benefits 5% higher than the existing CPI-W index increase calculation that we use today.