A New Bill Could Give Seniors Slightly Bigger Social Security Raises

A proposal could potentially increase Social Security benefits for seniors, giving retirees more money to live on every month. The reintroduced Social Security 2100 Act proposes to temporarily change how the cost-of-living adjustment (COLA) would work, possibly resulting in a small benefits boost.

As retirees spend more of their money on growing costs like health care, the idea of increased benefits could offer some relief. Here's how the proposal might work and how it might benefit retirees.

How the current COLA works, and what the proposal would change

The newly reintroduced Social Security 2100 Act proposes to modify the COLA calculation from 2027 to 2036 with the goal of ensuring that benefit amounts more accurately reflect retirees' spending.

The COLA is designed to ensure that Social Security benefit amounts keep up with inflation. The current COLA calculation uses Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) data, which reflects how working households typically spend their money. However, it doesn't necessarily reflect the way that retirees often spend their money and the expenses they face, like significant health care expenses.

Under the Social Security 2100 Act, CPI-W data would still be used, but data from the Consumer Price Index for the Elderly (CPI-E) would also be incorporated. CPI-E data monitors spending of Americans aged 62 and older. The act proposes referring to both data sets and then using whichever data set creates a larger COLA in each year.

Why changing the COLA calculation matters to retirees

Approximately 70 million Americans receive Social Security benefits, and for many retirees, Social Security is a substantial portion of their monthly income. Senior industry advocates have repeatedly called for the COLA calculation method to be updated, since it doesn't accurately reflect increasing medical costs and other expenses that seniors often face.

By using both CPI-W and CPI-E data, the proposed bill could make the COLA more accurate, ensuring it reflects how retirees actually spend their money and helping benefits keep up with the actual costs associated with retirement. The CPI-E tends to run about 0.2 percentage points higher than CPI-W data per year, reflecting the larger percentage of income that older adults tend to spend on health care.

The potential financial impact of the bill

The bill would likely have a very modest effect in any single year, but its impact compounds, leading to larger benefit increases over time.

Let's say that the bill was implemented. If CPI-E data ran 0.2 points higher than CPI-W data, a retiree with a $1,500 monthly Social Security benefit might see an increase of about $3 more in the first year than they would have seen if a COLA was calculated with CPI-W. However, if CPI-E data were used for the entire 10-year window, the retirees' cumulative benefits could be about 2% higher by the end than they would be if CPI-W data were used.

During years when CPI-W data was higher, the COLA could be calculated using CPI-W data, so the effect of the COLA change could vary from year to year as inflation fluctuates. Regardless, having both sets of data available as options could maximize benefits for seniors. The bill's change to the COLA would be temporary, and after 10 years, the COLA calculation would revert to the current form of using only CPI-W data.

How much could the bill help seniors

The bill may help Social Security benefits keep up with rising costs, and during times when inflation is steep, it might provide some welcome financial relief as retirees face increasing health care, energy, and housing costs. If retirees feel like their benefits aren't keeping up with their expenses, the changes implemented by the bill might give their benefits an extra boost.

But keep in mind that the benefits increases aren't likely to initially be significant, and the COLAs would be only slightly larger over time. While retirees might get a bit of financial relief from the higher benefit amounts, increasing benefits also would mean that Social Security would need more funding to pay for those benefits. Since Social Security already faces trust fund insolvency that might result in benefit reductions, lawmakers likely need to identify a broader solution for the program's financial challenges before the bill stands a chance of being voted into law.

Bottom line

The bill has only been referred to committee, and at this time it has limited Republican support. The greater Social Security conversation currently focuses on its looming insolvency, so this bill may not have the support it needs to pass in the near future.

If Social Security benefits are a key part of your retirement plan, it may be a good idea to revisit your budget to see how you'd fare if benefits were reduced in the event that Congress doesn't implement a fix before the trust fund runs out. Consider speaking with a financial advisor to check up on your retirement readiness and make sure that you're prepared in light of the uncertainty surrounding Social Security.

You May Also Like

$200 Bonus + Up to 5% Cash Back

Earn a $200 bonus after spending $500 on purchases in your first 3 months from account opening. Member FDIC

SPONSORED

7 Ways To Get Money Without Getting A Second Job

By FinanceBuzz Editors

How To Save Money on Car Insurance: 12 Ways to Lower Rates

By Elyssa Kirkham

10 Things Seniors Born Between 1941-1969 Could Take Advantage Of

By FinanceBuzz Editors

19 Dumbest Things Smart People Waste Money On

By Team FBZ

7 Moves If You Want to Stop Living Paycheck to Paycheck

By FinanceBuzz Editors

7 Clever Ways to Crush Your Debt

By FinanceBuzz Editors

Save Money and Get Huge Discounts on Everyday Purchases

AARP Benefits

• Huge discounts on travel, groceries, prescriptions and more
• Access to financial planning resources and health tools
• Join AARP and get 25% off with automatic renewal

Become a member now!

---

Subscribe Today

Unlock the Best Banking Deals and Bonuses

From high-yield savings accounts to cashback checking and sign-up bonuses, we bring you the best banking offers to grow your money smarter.

or

SEE TOP BANKING OFFERS →

By submitting this form you agree to receive emails from FinanceBuzz and to the privacy policy and terms