Social Security Advocates Push for 3% COLA in 2021

Greg Valliere, chief U.S. strategist for AGF Investments, said in his Tuesday morning email briefing that Congress "will need at least another week to agree on a massive budget bill and a Covid stimulus package."

The new deadline is 12:01 a.m. on Dec. 18, Valliere said, "as an expanding group of bipartisan lawmakers shuttle back and forth with new proposals."

Johnson noted that "because retirees tend to use their Social Security benefits to pay for essentials such as housing and healthcare, it would be a way to help stimulate the economy and to put younger adults back to work, which in turn, means stronger funding for Social Security and Medicare as well."

As it stands now, the annual inflation adjustment does not accurately reflect the spending patterns of retirees.

A key issue is that the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), "does not measure the spending patterns of retired adults age 62 and older," Johnson said.

The CPI-W assumes that younger working adults tend to spend about 40% of their income on housing and only 7.5% of their income on medical care, she explained.

However, Johnson states that her research indicates that retirees tend to spend 47% of their income on housing and 14% on medical care, both of which have increased faster than the overall rates of inflation in recent years.

In addition, the CPI-W doesn't reflect Medicare Part B premiums, which have grown roughly three times faster than COLAs from 2010 to 2021, according to Johnson. "The Federal Reserve doesn't expect that inflation will be much more than 1.37% for much of the next decade," she said.

— Related on ThinkAdvisor:

• Social Security in 2021: States With the Biggest, Smallest Checks
• How Medicare Premium Hikes, Small Social Security COLAs Squeeze Retirees