Why Retirees Get a Social Security Raise Even When Congress Doesn’t Act

There are many older Americans today who rely on Social Security for retirement income. And without those benefits, a lot of seniors would be unable to pay their expenses.

People who rely heavily on Social Security don’t just depend on their benefits, though. They also depend on the program’s cost-of-living adjustments, or COLAs.

Each year, Social Security benefits are eligible for an automatic COLA based on inflation. But things didn’t always work that way.

A much better system

The reason Social Security COLAs are so important boils down to inflation. Over time, living costs are likely to creep upward gradually. But many people collect Social Security for decades. Without those raises, seniors would have virtually no chance at being able to keep up with their expenses.

Prior to the mid-1970s, lawmakers had to vote in Social Security COLAs. But that policy changed so that beginning in 1975, COLAs became automatic. It was decided that instead of having Congress meet each year to make that decision, COLAs would be tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

So now, retirees are eligible for a Social Security raise even when Congress doesn’t act. Those COLAs are typically announced each year in October and go into effect the following January.

There are a few reasons why this change happened. First, lawmakers wanted to guarantee retirees some degree of financial stability by making sure that Social Security was eligible for a COLA each year.

Secondly, it was decided that it would be too dangerous to put seniors in a position where they had to wait on lawmakers to debate a COLA each year, potentially delaying those increases.

Also, the fact of the matter is that Social Security COLAs should not be political. They should be based on hard numbers.

Taking Congress out of the equation by making COLAs automatic helps ensure that lawmaker or party agendas do not get in the way of seniors getting the boosts they need to their benefits to stay afloat financially.

The system is still flawed

Though it’s a good thing that Social Security benefits are eligible for a COLA each year, the system is still far from perfect.

As mentioned, COLAs are tied to the CPI-W. But that itself is a problem since the CPI-W does not accurately reflect the costs that retirees tend to face.

It stands to reason that the expenses faced by urban wage earners may not mimic the expenses retirees face. One such example relates to healthcare.

Healthcare doesn’t carry a lot of weight in the CPI-W, but it tends to be a huge expense for Social Security recipients. And in recent years, healthcare costs have outpaced inflation, causing Social Security beneficiaries to lose out on buying power.

Advocates have proposed using a senior-specific index — the Consumer Price Index for the Elderly — to measure COLAs. Whether lawmakers agree to that change is to be determined.

For now, seniors can rest assured that Social Security benefits are eligible to increase each year if inflation warrants it. Whether those COLAs suffice is another story.