Social Security in 2018: Potential changes and how they could impact you

Recent inflation trends could boost the 2018 cost of living adjustment (COLA) for Social Security beneficiaries to its highest since 2012, according to advocacy group The Senior Citizens League.

While any increase would be welcomed news for seniors living on a fixed income, the potential six-year high won’t necessarily be something to write home about, according to TSCL.

“The rate of inflation is the driver of COLA increases. But the truth is that it would not take much to beat COLAs of the past five years — 2013 thru 2017. During that time COLAs ranged from a low of zero in 2016, and 0.3% this year, to a 'high' of 1.7 percent in 2013 and 2015, anything above 1.7 percent would make it the highest since 2012,” said Mary Johnson, TSCL’s Social Security and Medicare policy analyst. “The bar is set pretty low.”

Johnson discussed with FOX Business TSCL’s predictions for 2018 COLA, which the Social Security Administration will announce in the fall, and what it means for retirees.

Boomer: What are some of the changes we might see for Social Security in 2018?

Johnson: Recent CPI data indicates that the COLA in 2018 could be the highest since 2012. (Remember that could be anything higher than 1.7 percent). I’m projecting that the COLA for 2018 will be around 1.9-2.1 percent. Keep your fingers crossed, the 12 - month rate of inflation growth has weakened over the past month.

Boomer: With benefits losing 30 percent of their buying power in 2017, do you see any chance of COLA increases playing catch up over the next few years?

Johnson: The short answer is no — not without legislative remedies. The way the COLA is currently calculated stacks the deck against retirees, because it isn’t measuring retirees’ costs and the portion of their income they are spending on those costs.

Today’s COLA is tied to the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). That index doesn’t survey the spending patterns of people age 62 and older.  It doesn't include the price changes of some of retirees' fastest growing costs — like Medicare Part B premiums. Part B premiums have gone up 195 percent since 2000.

Because the CPI-W is tracking the spending patterns of younger workers, it doesn’t accurately capture the portion of income that older people spend on certain items. For example, medical costs under the CPI-W are only weighted for 7 percent of household budgets. But a weighting of 12.1 percent is more accurate for the medical costs of people age 62 and older. This underweighting, tends to understate the rate of inflation for some of the most rapidly growing senior costs.

On the other hand the CPI-W overweighs other categories that have recently gone down in costs. For example, the transportation category is weighted 17 percent for younger adults vs. 13.9 percent which is more appropriate for people age 62 and over. In recent years as the price of gasoline and other transportation costs dropped, this weighting has acted like a “brake” on the growth of the COLA.

To “catch up” older people would not only need a more adequate COLA, they would also need a modest boost in benefits. This is especially true for people retired for a longer period of time. The Senior Citizens League strongly supports legislation in Congress that would do both, including Social Security 2100 Act and the Social Security Expansion Act.