The 64 million retired, disabled and low-income Americans receiving Social Security benefits will see an increase of 1.7 percent – or around $20 per month on average – next year, the Social Security Administration (SSA) recently announced.
According to an Oct. 22 SSA press release, the 1.7 percent cost-of-living adjustment (COLA) will take effect for Social Security beneficiaries in January 2015, while Supplemental Security Income (SSI) beneficiaries will receive increased payments starting on Dec. 31, 2014.
COLAs are tied to annual increases in the Consumer Price Index, which through September also rose 1.7 percent, an amount below historical averages. Automatic increases in Social Security benefits began in 1975 amid high inflation, and as the New York Times reports, for the first 35 years COLAs were less than 2 percent just 3 times.
Increase Less Than 2 Percent for Fifth Year
With the changes for 2015, however, the adjustment will be less than 2 percent for the fifth time in six years. While this reflects continuing low inflation in the economy, says Mark Miller in a Reuters article published by the Chicago Tribune, the COLA doesn’t take into account the inflation faced by fixed-income beneficiaries.
“From an ideal math perspective, what you want is a calculation based on an index that matches retirees’ cost of living,” Polina Vlasenko of the American Institute for Economic Research told Reuters. “The [Consumer Price Index for Urban Wage Earners and Clerical Workers] CPI-W is constructed to measure spending patterns of urban wage earners, and it’s pretty clear that retired people spend differently than wage earners.”
Americans receiving Social Security Disability Income (SSDI) and SSI could face similar shortfalls as major costs such as food and healthcare inflate at greater rates than their benefits. In 2015, says the Wall Street Journal, food prices are forecast to rise 3 percent, while health-care costs are expected to grow 6.8 percent next year, according to U.S. News & World Report.
Larger Increases on the Horizon?
Since 2000, Social Security beneficiaries have lost 31 percent of their buying power, research shows.
Social Security reform, which many experts say is needed to ensure the future solvency of the benefits program, might include a more generous COLA adjustment, something that research indicates most Americans would support.A recent poll by the National Academy of Social Insurance (NASI), for example, shows that 72 percent support raising benefits. Among respondents with an opinion, those in favor of COLA changes outnumbered those opposed by 6 to 1.