One legislator from Oregon is working to help some of the state’s most vulnerable seniors by making sure the raises they get through the Social Security system each year do a better job at keeping up with their ever-increasing living expenses.
Late last month, U.S. Sen. Jeff Merkley announced plans to sponsor a bill that would switch the formula used to calculate the program’s annual cost-of-living adjustments from one that was based on the nearly universal Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to one that uses an economic measure designed to better reflect the economic realities people 62 or older face.
“Our senior citizens are not urban wage and clerical workers,” the senator said as he described his plan to incorporate the Consumer Price Index for the Elderly (CPI-E) into the formula used to calculate Social Security’s cost of living adjustments. “They have completely different spending habits and it is only fair to use an index that accurately reflects the items that they buy.”
Merkley said using the CPI-W instead of the CPI-E has put Social Security beneficiaries in a position where their cost-of-living adjustments have failed to keep up with their actual costs of living for the past three decades.
As a result, many low-income seniors have seen the overall purchasing power of their Social Security benefits slip away over time.
“For nearly two-thirds of our seniors, this could be an incredibly important part of determining whether they will have enough money to get by in their retirement years,” Merkley said, citing statistics that one-third of the country’s seniors rely on Social Security for 90 percent of their incomes and another third relies on it for half of their incomes.
Developed during the World War I era, the CPI-W is a mathematical formula designed to calculate how much money clerical workers, sales workers, laborers and people who work other non-managerial or non-executive positions spend on housing, food, transportation and other basic costs of living.
Social Security has used this index to calculate the cost of living adjustments paid to its beneficiaries since June 1975. It is also used to make sure the money paid to food stamp recipients, federal employees and some private sector employees each year can keep up with the rising costs of inflation.
But while this index and its companion formula, the Consumer Price Index for All Urban Consumers (CPI-U), paint a relatively accurate picture of the economic situations faced by most Americans, they have consistently failed to measure the bills paid by people 62 or older and how those living expenses have changed over time, according to a 2011 report published by the Bureau of Labor Statistics.
The bureau’s report found that the average senior spent 44.5 percent of his total household income on housing in 2011 and 11.3 percent of it on medical care. These two items made up 39.2 percent and 5.6 percent of the average urban wage earner’s annual expenses that year .
It also found the cost of these two items increase at rates that were considerably higher than the standard rate of inflation. The average senior’s medical expenses grew by a rate of about 5.1 percent per year between 1982 and 2011, according to the bureau’s report, while their other expenses grew by a rate of 2.8 percent per year.
Based on these findings, the bureau’s researchers estimated that a senior’s true living expenses — which are measured by the CPI-E — grew at an overall rate of 3.1 percent per year over that 29-year period.
That’s about one-fifth of a percentage point more than the average growth rate seen by the CPI-W and, as a result, the cost-of-living adjustments paid to Social Security beneficiaries each year have not been keeping up with their increasing living expenses. It’s estimated the average monthly benefit paid to seniors and their loved ones would be 4.5 percent higher than it currently is if the CPI-E had been used to calculate the program’s cost-of-living adjustments instead of the CPI-W.
“Seniors deserve better,” Merkley said in an April 24 press release that announced his plans to craft legislation that would change how Social Security’s cost-of-living adjustments are calculated. “I hear too many stories in Oregon about seniors who are struggling to stay afloat on their Social Security benefits.”
Though Merkley’s proposal is still in its early stages, he said it would at least halt the steady erosion in the value of a person’s Social Security benefits by making sure they grew at the same rate as an individual’s living expenses.
He said these increased payments would shrink Social Security’s solvency period — the amount of time before the Social Security trust fund’s balance is wiped out and triggers a 30 percent reduction in a person’s future earnings — from 20 years to 19 years.
“It’s a small deal in terms of trust fund solvency but it’s a big deal for low-income seniors,” said Merkley, who plans to counter this shrinkage by including language in that would raise Social Security’s taxable-earnings limit.
He said raising this limit from its current level of $117,000 a year to $250,000 a year would increase the program’s solvency period from about 20 years to about 40 years.
“Let’s make small changes now to address the problems with Social Security before they become a crisis,” he said. “Let’s not wait for the rainy day, let’s prepare for it now while the trust fund is still solvent.”
— Reporter: 541-617-7816, email@example.com