One of the downsides of a sudden jump in inflation is that annual cost-of-living increases may quickly become really off base.
That’s what’s happening now with retirees collecting Social Security, according to a nonpartisan seniors group. Their true cost of living is rising much faster than the bump they got from the government this year, the group says, which could leave many of them facing a financial crunch.
“Inflation has exploded,” Mary Johnson, a Social Security policy analyst for The Senior Citizens League, said in a recent statement on the group’s website. “When the prices on the goods and services that retirees depend on go through the roof, their Social Security benefits don’t buy as much, and that causes enormous financial stress for all retirees."
While the current inflation rate isn’t all that unusual by pre-pandemic standards, there was a stark jump in March, a reflection of supply shortages, increased demand, and unusual comparisons from the onset of the pandemic a year ago. Economists and policymakers say these trends will only drive prices higher, at least in the short-term, as the economy recovers.
So while the inflation measure that’s used to calculate the annual cost-of-living adjustment, or COLA, had shot up to 3% by March, the COLA for 2021 Social Security benefits was just 1.3%, the smallest since 2016. That’s because COLA is calculated based on the previous year’s third-quarter average of that inflation measure, a specialized subset of the Consumer Price Index (CPI) called the CPI for Urban Wage Earners and Clerical Workers (CPI-W).
The lag time is all the more reason Social Security should have a guaranteed 3% minimum increase in COLA, the seniors group is arguing. A survey of 1,125 participants, taken mid-January through April 20, showed more than 62% of retirees believe there should be such a minimum, the group said.
Car and truck rentals and laundry equipment are among the items with the biggest price hikes in the year through March, Johnson noted, citing government data. These items, along with fuel costs and certain staples, are some of the most relevant to retiree budgets, she said.