A proposal from 1987 would give every Social Security beneficiary the same dollar increase in benefits each year instead of giving everyone the same percentage increase. An old Social Security idea is getting fresh attention.
Tim Penny of Minnesota in 1987. AARP said that would have meant a loss of about $285 over the full year for the average beneficiary. AARP also said the $34.20 increase would have been below the actual inflation rate, meaning the benefit would not have fully kept up with rising prices. But critics, including AARP, warn that the same system could mean smaller inflation adjustments for 80% of beneficiaries.
Because social Security is facing a serious funding problem, the issue is becoming more important. AARP’s concern is therefore that a policy designed to help poorer beneficiaries could also leave a large group of middle-income retirees with weaker inflation protection. The idea was proposed by former Democratic Rep. His proposal was called a “ flat-rate COLA . Under the proposal, the dollar increase would be based on the COLA received by a beneficiary at the 20th percentile. Everyone would then get that same dollar increase, regardless of how much they normally receive. The current system gives Social Security beneficiaries a percentage-based COLA, or cost-of-living adjustment, every year. A flat-rate COLA would still use the same basic inflation calculation to determine the annual increase. But instead of applying the percentage increase to every person’s benefit, the percentage would first be applied to the benefit of someone at the 20th percentile. In simple terms, critics argue that the increase may look like a COLA on paper, but it may not actually protect the purchasing power of most beneficiaries. AARP warned that the impact of these smaller COLAs would multiply as the years go by. This could leave some beneficiaries struggling more as they age, particularly people who depend heavily on Social Security for their everyday expenses. The flat-rate COLA is designed to make Social Security more generous for lower-income beneficiaries while slowing benefit growth for people with higher benefits. Supporters believe this could reduce poverty and help extend Social Security’s finances.
The Social Security Administration calculates the annual COLA using the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, according to USA Today.
