Social Security Administration headquarters in Baltimore. (Photo: Bloomberg)
Senior citizen activists and others who oppose using the chained CPI-U to calculate the Social Security cost-of-living adjustment (COLA) just got some government support for their argument.
The Government Accountability Office studied hypothetical COLA levels over the 30 years from 2003 to 2033, using calculations linked to the Chained Consumer Price Index for All Urban Consumers (CPI-U), the CPI-E (the E stands for elderly) and the CPI-W (for Urban Wage Earners and Clerical Workers), which is the current standard.
It found that that the COLA would decrease by an average 0.25% per year if the Chained CPI-U were used instead of the CPI-W, and the total loss would top 7% after 30 years.
Using the CPI-E as the COLA link, in contrast, would increase payouts by more than 4% over the same 30-year period.
The GAO also found that the impact of these changes from the CPI-W standard to calculate COLAs would be greatest for low-income retirees and smallest for high-income Social Security beneficiaries.
According to the study, by 2033 a hypothetical 65-year-old in 2003 with earnings equal to the national average wage index ($33,256 in 2003) would collect $165 less per month if the COLA were linked to the chained CPI-U rather than the current CPI-W. That equates to about $2,000 less that year.
That same hypothetical senior receiving a COLA linked to the CPI-E would see his or her monthly benefit increase more than $100 by 2033, which equates to an additional $1,300 in benefits that year.
The GAO report notes that the Office of the Chief Actuary at Social Security assumes that the CPI-E would increase future payouts by 0.2 percentage points more than the CPI-W and that the chained CPI-U would reduce payouts by 0.3 percentage points compared to the CPI-W.
(Related: Social Security COLA for 2019: 2.8%)
