Is the COLA (Cost Of Living Adjustment) losing its fizz? Many seniors now feel that the annual Social Security cost of living increase is failing to keep up with the soaring prices of everything from gas and heating bills to groceries and prescription drugs. As a result, seniors are suffering, and they’re suffering badly. In 2005, for example, the Social Security cost of living increase was just 2.7 percent. But if you filled up your car at the gas pump, you probably noticed the 28 percent jump in gas prices. And when you paid your heating bill, you probably noticed that the price of home energy soared by double digits as well.
Meanwhile, the Federal Reserve kept raising its rate last year as well, meaning that seniors watched helplessly as their already diminished spending power was cut even further as they paid higher rates on credit card bills, car loans and adjustable rate mortgages. The absence of a fair Social Security cost of living increase affects seniors in a very real way. Fran, a TREA Senior Citizens League (TSCL) member from New Hampshire, is typical of our members. She follows the news, knows what’s happening with her friends and detects even subtle changes in prices. She recently told us that even her beloved oranges are getting too expensive to buy at her local grocery store.
“I don’t think the politicians care about seniors at all,” she told us. “I have friends whose sole source of income is Social Security, and they struggle each month to make ends meet. Each year, it gets worse. The politicians don’t care about people like them!” How The COLA Hurts You The COLA is tied to changes in the Consumer Price Index (CPI). While the public commonly thinks of the CPI as one index, this is not the case. There are several CPIs–each of which measures inflation rising in different rates, depending on which “market basket” the government is looking at.
However, the government calculates COLAs using one of the most slowly growing indexes-the Consumer Price Index for Urban Wage Earners and Clerical Workers. It surveys the goods and services that younger workers use. But younger workers have far different spending habits than seniors, who must spend a much greater percentage of their income on health care. When the government calculates the COLA for an 80-year-old war veteran using the spending patterns of a 28-year-old young mother, something has gone terribly awry.
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