Social Security really screwed up the increase in benefits for 2017!

Yesterday Social Security announced the Cost of Living Adjustment (COLA) for 2017 here and it’s a doozy! Despite Seniors and Disabled people paying significantly more for health care, rent, and food these days, Social Security is only increasing Retirement, Disability, and Supplemental Security Income (SSI) benefits by 0.3% in 2017.  For someone getting $1000 per month in benefits, they will get a whopping $3 raise in 2017. What?!? Meanwhile, Social Security is collecting more money from working people, raising the maximum amount of earnings subject to payroll tax from $118,500 per year to $127,200 per year. That’s a more than 7% increase. So the government is taking 7% more from us and paying out 0.3% more. I don’t pretend to know the accounting vagaries of the Social Security Administration, but even I know that there is something seriously wrong here. To paraphrase the words of Forrest Gump, I’m not a smart man, but I know what getting swindled is. 

One of the major reasons for the very low COLA next year is the erroneous way Social Security defines inflation. The general rule is that Social Security Retirement, Disability, and SSI benefits are inflation-proof. In other words, if inflation increases then benefit increase an equal amount. Great, right? Not so fast, the devil is in the details. Congress has decided that inflation for COLA will be based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which includes gasoline prices. The CPI-W as a whole reflects prices paid by working people. The problem? Seniors and Disabled people do not have the same costs as working people! If gasoline prices are lower, for example, Seniors and Disabled people will not save as much money as working people who commute every day. So in the last few years, there has been little to no increase in benefits paid by the SSA partly because gas prices are so low. But the people getting the benefits are paying more for everything else! As usual, the little people are getting swindled in the numbers game.