Now if record-high prices don’t subside, that will lead to a higher Social Security cost-of-living adjustment in 2023. Yet, even with a more generous boost to benefits next year, there’s a growing campaign to change the way those annual benefit adjustments are measured. New consumer price index data for May released on Friday shows inflation rose 8.6% over the last 12 months, marking the fastest increase since 1981. And that data is focused on urban consumers. A subset of that data, called the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, that is used to calculate the Social Security cost-of-living adjustment each year, climbed 9.3% over the last 12 months. As a result, the COLA for 2023 could be 8.6%, according to a new estimate from The Senior Citizens League. And that is unchanged from the group’s forecast last month.
The Social Security Administration’s chief actuary, Stephen Goss, said recently that next year’s COLA could be “closer to 8%,” more than twice the 3.8% estimate in the agency’s annual trustees report, which was based on data through mid-February. Much of whether a record high increase will be implemented next year depends on how inflation fares in the coming months. The annual COLA is calculated by comparing third-quarter data over the same three months for the previous year. Therefore, the increase for next year will depend on CPI-W data for July, August and September. Social Security recipients saw a 5.9% boost to their benefits this year, the highest in about 40 years. A higher COLA for next year would also break records. It is possible such an increase could impact the projected insolvency dates for Social Security’s trust funds, according to the Committee for a Responsible Federal Budget. There are increasing calls to change the measure for the annual increases to the Consumer Price Index for the Elderly, or CPI-E, which some argue better measures the prices retirees pay. That includes Senators Bernie Sanders from Vermont, and Elizabeth Warren from Massachusetts, who on Thursday proposed a new bill to fix Social Security alongside a group of Democratic lawmakers. And that bill, called the Social Security Expansion Act, is a proposal to change the COLA measurement to the CPI-E.
Another bill proposed by Representative John Larson from Connecticut, the Social Security 2100 Act, also proposes a switch to the CPI-E. President Joe Biden advocated for this change, along with other Social Security reforms, during his campaign. Social Security and senior advocacy groups like The Senior Citizens League have also called for changing over to the CPI-E, which was created in 1987 by the U.S. Bureau of Labor Statistics at Congress’ instruction. The switch would not represent a benefit increase, noted Nancy Altman, president of the advocacy group Social Security Works, in written testimony submitted for a December congressional hearing. It simply ensures that benefits will not erode, but will maintain their purchasing power over time. Had that measure been used for this year’s COLA, the increase would have been just 4.8%, rather than the 5.9% hike that has been implemented, according to research from the Center for Retirement Research at Boston College. Moreover, while the CPI-E has historically risen faster than the CPI-W, that difference has narrowed. According to the Center for Retirement Research, to best measure the changing costs Social Security beneficiaries face, it may make more sense to use a different measure than the CPI-E, which just re-weights data collected for the population as a whole.