Impacts of Potential Changes in Social Security in 2018

Impacts of Potential Changes in Social Security in 2018
Bernadine Racoma

Some good and not so good news is in the offing for the 2018 changes in Social Security benefits. According to The Senior Citizens League (TSCL), the Social Security cost of living adjustment, or COLA, would likely get a boost next year, based on recent inflation trends. If this happens, it will be the highest in six years, with 2012 as the benchmark.

TSCL says that it will be good news for seniors who are on fixed income, although they consider this as still a minimal increase in Social Security. It will not make a big impact if you consider that the rising inflation affects the buying power of senior citizens.

Inflation Rate and Social Security

The increases in the COLA are driven by the rate of inflation. There was no increase in 2016. This year the increase was only 0.3 percent, whereas it was 1.7 percent in 2013 and 2015. If the rate of increase for 2018 is higher than 1.7 percent, TSCL says that it will be the highest in six years because the benchmark is very low.

The changes in the COLA will be announced by the Social Security Administration in October.

TSCL’s Social Security and Medicare policy analyst, Mary Johnson, predicts that for 2018 the COLA increase will be around 1.9 percent and probably will reach about 2.1 percent. She is hoping that this will hold, considering that the rate of inflation is currently getting weaker.

Effect on Seniors’ Buying Power

In an interview, Ms. Johnson was asked if the increases in the COLA would have more impact on the buying power of seniors. This year, the Social Security benefit of seniors lost 30 percent of their buying power.

Ms. Johnson said that based on their study, the current increases in COLA will not make a positive impact on Social Security if legislative remedies are not forthcoming. The way COLA calculation is done right now, it does not factor in the retirees’ costs and the part of their income that they use to spend on their living expenses.

COLA Computation

Mary Johnson explains that the COLA is connected to the increase of CPI-W or the Consumer Price Index for Urban Wage Earners and Clerical Workers. This index, according to Ms. Johnson, does not survey the seniors’ spending patterns. Likewise, it does not include the price changes of the seniors’ immediate costs, like the premiums for Medicare Part B, which, since year 2000, has gone up by 125 percent!

The CPI-W only tracks the spending patterns of younger working population, thus, it only accounts for 7 percent of the household budget. There is a big gap, since for seniors, the medical costs should be weighted at around 12.1 percent.

The monthly premiums for Medicare Part B increased by 195 percent. It was only $45.50 in 2000, while in 2017 you have to pay $134. The out-of-pocket costs of prescription drugs on the average, was only $1,102 in 2000.

In 2017, the average is $3,132. For people age 65 and up, their average yearly out-of-pocket medical expenses in 2000 were $6,140, while it increased to $12,125 in 2017.

One thing that holds the growth of COLA is the transportation category. For younger adults, it is weighted at 17 percent, while it is only at 13.9 percent for senior adults. This is still not enough. Those who have long retired have to dip into their retirement savings more frequently to afford their necessities, like housing, food and medical care.

Comment Below
  • Michael Cox

    Inflation is a major factor in social security’s buying power !!

    Did anyone ever think that savings is also subjected to the same buying power with inflation ??

    This means you have to put more in savings from your check over the years to outpace inflation. !!!!!!!!!!!!!!

  • Bro Richard Russell

    I remember when I was working for a certain power transformer producer. It had been a while since anyone had received a raise, one year the company announced they were going to give a cost of living raise. Everyone got all excited until they actually got the raise. The end result was we all ended up taking home less money than before the raise. Why? Tax brackets, the more you earn the more tax you pay. Pay increases are not always the blessings they seem to be.


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