Each year in October, millions of Americans who receive Social Security benefits get a glimpse of the COLA adjustment for the following year, but what does it really mean?
COLA stands for Cost-of-Living Adjustment. It’s designed to help Social Security benefits keep pace with inflation, so retirees and other beneficiaries don’t lose purchasing power as prices rise. Without COLA, benefits would remain flat even while the cost of essentials like food, housing, and healthcare steadily increases.
How is COLA Calculated?
The Social Security Administration (SSA) bases COLA on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is measured by the U.S. Bureau of Labor Statistics. Here’s how it works:
- The SSA looks at the average CPI-W for July, August, and September of the current year.
- That number is compared to the average CPI-W from the same three months of the previous year.
- If the index has risen, the percentage increase becomes the COLA for the following year. If inflation has been flat or negative, there is no COLA adjustment.
Why it Matters
COLA ensures that Social Security payments stay more in line with everyday costs, but it isn’t a perfect system. Since it’s tied to the CPI-W, which reflects the spending habits of workers rather than retirees, some argue that it doesn’t fully capture seniors’ rising medical and housing expenses.
The Problem with COLA
There is a deep flaw in how COLA is calculated when it comes to older Americans. The CPI-W does not accurately reflect costs for seniors. For older individuals, especially those aged 82 and over, there are significant expenses that are not considered in SSA‘s formula.
Older Americans typically have more medical expenses than their younger counterparts. Prescription drug prices seem to leap higher and higher every year. Ever-increasing medicare premiums also make life much less affordable for seniors.
The current system does not account for the specific challenges older Americans face; however, there may be a solution. We are urging Congress to pass the Elder Relief Act. This proposed legislation would be life-changing for Americans age 82 and up. Learn more here.