Here’s how Social Security calculates its raises and why it should change

After years of stingy cost-of-living adjustments, or COLAs, it’s finally looking like seniors on Social Security will be in line for a big raise in 2022. That’s because inflation has been unusually high over the past few months. If that trend continues into the next part of the year, it could result in a substantial boost to retirees’ benefits come January.

But while a nice annual benefit check boost may seem like a good thing, many experts agree that the way Social Security raises are calculated is flawed.

How should you measure inflation?

For years, Social Security COLAs have been calculated based on third-quarter figures from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). When the CPI-W indicates that the overall cost of a basket of common goods and services has risen, benefits get a boost.

But there’s a big problem with using the CPI-W for that calculation, and it’s the whole “urban wage earners and clerical workers” aspect. Retirees are not, as a rule, urban wage earners or clerical workers. As such, the costs that most heavily influence the CPI-W don’t accurately reflect the things seniors tend to spend the most money on.

Take gasoline, for example. If you don’t work full-time anymore, it’s fair to bet that, generally speaking, fuel will be a more minor expense for you than it is for the average worker with a daily commute. But each year, the price of gasoline plays a big role in determining whether seniors wind up with a COLA, and how large that COLA is, even though gas is not something retirees typically spend a lot on.

By contrast, older people tend to need more healthcare than the average working-age American. But as a factor in the CPI-W, medical costs are underweighted relative to how much of their money seniors spend on them.

So what’s the solution? The most obvious one boils down to using a more appropriate index to calculate COLAs – the Consumer Price Index for the Elderly (CPI-E).   ReadMore

Source : cnet


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