Social Security was signed into law by President Roosevelt on August 14, 1935. It’s since become an ubiquitous part of the financial lives of virtually every American.

COLAs, or Cost of Living Adjustments, started in 1950. But it wasn’t until 1972 that legislation provided that starting in 1975, automatic cost of living adjustments became normal. It no longer requires a special act of Congress to up the benefits.

The effect today is to provide qualified beneficiaries of the system COLAs every year there is a increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Arguments are made that this index has flaws, that it hurts retired beneficiaries. Urban and clerical workers have very different spending patterns than senior citizens. Shelter and medical care tend to be under-weighted in the CPI-W, while things like education, apparel and transportation are over-weighted. It doesn’t accurately reflect the consumption profiles of retired people.

Monthly retirement benefits were never meant to the sole source of income for retired Americans. It was intended as a financial safety net to keep the elderly from having to live in the streets and beg for food. It was originally, and remains today, an effort by society to help take care of elderly Americans with insufficient resources who might otherwise starve to death, or worse.

That being said, it’s now a critical element for not only retired people, but it  effectively moves billions of dollars every month into our economic system. Without that infusion of cash, vast numbers of American businesses would suffer and some would disappear. I ask you to envision the consequences if that cash flow stopped or was dramatically reduced.

Today, studies suggest more than 3 out of 5 retired workers rely on Social Security for at least half their monthly income. There are some years when the CPI-W doesn’t change, but in most years, there is some increase in the monthly benefit.

The CPI-W starts with 8 core spending strategies, each of which has many subcategories. The quarterly change in the resulting index that’s used to project the potential increase in the following years’ COLA, is whatever appears in the July, August and September monthly readings. Those numbers are averaged and that’s what creates the COLA for the following year. Benefits, once granted, cannot decline due to deflation.

The only number we have so far is from July 2019. Compared to July 2018, this year July’s number is a plus 1.66%. We have to wait until October before we have any real idea of the average number that will apply to 2020.

The Senior Citizens League argues the purchasing power of Social Security dollars for seniors and/or retired workers has declined roughly 33% in the past 20 years. That means what $100 would buy in 2000 will only buy $67 of the same goods and services today. Add to that a lack of emphasis on what seniors must spend money on and you have a problem brewing.

Solutions to the obvious problems are unlikely to be solved any time soon, given the political issues we face. Finding a consensus to fix the COLA problems is going to take some time and effort by both parties.

Tony Kendzior \ August 28, 2019