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No COLA for you

 

Inflation is always a problem for those on a fixed income, such as Social Security disability (SSD). While SSD can be a lifesaver for the disabled, who otherwise might have no income, there is a risk that that income could be eroded away by yearly inflation slowly eating at their benefits payment.

To prevent this from happening, Congress has instructed the Social Security Administration to apply an annual cost-of-living adjustment (COLA) to the programs they administer, included SSD, the retirement program and Supplemental Security Income (SSI). The COLA takes a measure of inflation and then applies that inflation rate to increase the payments to beneficiaries of the program.

 

The COLA rate is based on increases to the Consumer Price Index (CPI), which is based on a "market basket of goods" that consumers purchase every year. And for SSD recipients, the choice of which goods go into that basket is the problem.

SSA uses the CPI for Urban Wage Earners and Clerical Workers, or CPI-W, which is the primary CPI used when discussing inflation. However, it is based on the cost of goods that younger families typically purchase.

Many of the goods within this index are items that the elderly no longer buy or use, and advocates for the disabled and elderly argue that a different CPI should be used for the Social Security programs.

For instance, this year there may be no COLA for those programs due to falling gas prices. Gasoline prices have declined 23 percent since last year, which skews the overall CPI-W. For the disabled and elderly, gas prices may be less significant, as many do not drive, or may only drive a limited distance.

They argue a CPI more heavily weighted with items that they purchase, such as healthcare products and drugs, and less on items like gas and appliances, would provide them with a more accurate COLA.

Whether Congress will make such a change is unclear, but given the risk that SSD could see a significant cut due to funding issues, next year's COLA may be the least of many beneficiaries' worries.

Source: bigstory.ap.org, "Lower gas prices means no Social Security increase next year," October 11, 2015

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