Social Security COLA Changes Could Cut Retiree Benefits
Lawmakers weighing Social Security fixes are eyeing the cost-of-living adjustment as a target. Here's what proposed changes could mean for retirees.
Proposals to shore up Social Security's long-term finances are increasingly focusing on the cost-of-living adjustment, or COLA, a mechanism that has annually increased retiree benefits in line with inflation since 1975. Any revision to that formula could have lasting consequences for tens of millions of Americans who depend on the program.
Several competing approaches are under discussion. Some would tie benefit increases to a different inflation index, while others would slow the pace of adjustments or restructure how various recipient groups receive them. The exact financial impact on individual retirees would depend heavily on which proposal, if any, advances through Congress.
Read more Roth Conversion Advice for Retirees in Their 80s: Does It Make Sense? →
Critics of COLA modification warn that even modest-sounding technical adjustments can compound significantly over time, eroding purchasing power for older beneficiaries who tend to face above-average healthcare and housing costs. Supporters of reform counter that without changes to formulas like COLA, the Social Security trust funds face insolvency within roughly a decade under current projections.
The debate reflects a broader tension in Washington over how to stabilize the program without triggering sharp political backlash from older voters, who reliably turn out in high numbers at elections. Changes to COLA represent one of several levers policymakers could pull alongside tax increases or eligibility-age adjustments.
The stakes are high for current and near-future retirees, who have limited ability to adjust their retirement savings strategies if benefit growth slows unexpectedly. Continue reading at MarketWatch.com.
