When calculating the annual cost-of-living adjustment (COLA) for Social Safety funds, the Social Safety Administration (SSA) bases it on information collected by the Bureau of Labor Statistics (BLS), particularly the Shopper Worth Index for City Wage Earners and Clerical Employees (CPI-W).
Nevertheless, there’s one other index put collectively by the BLS– the Shopper Worth Index for the Aged (CPI-E)– that some argue might give Social Safety recipients a better cost if it had been used to calculate the annual COLA.
How the COLA is calculated
The way in which it really works now’s that the SSA compares the common CPI-W for the third quarter of the present 12 months with the common CPI-W for the earlier 12 months. The share enhance is rounded to the closest tenth of a share and utilized to advantages.
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If there is no such thing as a share enhance, there is no such thing as a COLA enhance. The profit ranges are by no means minimize, even when there’s a drop year-over-year within the value index. The COLA enhance for 2026 gained’t be out till October. As of now, The Senior Residents League (TSCL) predicts the 2026 COLA can be 2.6%.
The CPI-W tracks the costs of a basket of products that features meals and drinks, housing, attire, transportation, medical care, recreation, training and communication. The CPI-E tracks the identical baskets of products however provides extra weight to objects that older adults are more likely to buy extra regularly, together with housing and well being care. The CPI-W provides extra weight to transportation and meals.
Ought to the COLA be based mostly on the CPI-E?
Due to the distinction in weighting, proponents of switching the COLA to the CPI-E say the CPI-E higher displays what older adults spend their cash on and thus might enhance the annual COLA.
Any enhance, they argue, is welcome, provided that many older adults reside on a set earnings and depend on Social Safety as their sole means of money movement in retirement.
That’s the pondering behind the Boosting Advantages and COLAs for Seniors Act, which was launched into laws in March 2024 by Senator Bob Casey, D-Pa. Co-sponsors of the invoice embrace Sens. Richard Blumenthal, D-Conn.; Peter Welch, D-Vt.; John Fetterman, D-Pa.; Kirsten Gillibrand, D-N.Y.; and Bernie Sanders, I-Vt.
The laws continues to be making the rounds, and it isn’t clear if it’ll ever develop into regulation, particularly with the Republicans in energy and in opposition to a backdrop through which Social Safety will face insolvency in 2033. If no motion is taken at that time, the fund will solely cowl 77% of the scheduled advantages.
What’s within the invoice?
The invoice requires the SSA to regulate Social Safety advantages based mostly on the CPI-E as a substitute of the CPI-W, arguing it could end in a bigger enhance in funds. It additionally calls on the BLS to calculate and publish the CPI-E month-to-month.
“It’s important that we shield and broaden advantages for older adults who depend on them, and the Boosting Advantages and COLAs for Seniors Act will make much-needed adjustments to the COLA calculation, leading to larger advantages which might be reflective of the experiences of older adults,” Senator Casey mentioned when introducing the laws.
The invoice has the backing of a number of organizations, together with the Alliance for Retired People, the Nationwide Committee to Protect Social Safety and Medicare and Social Safety Works, amongst others.
Nonetheless, critics argue that calculating the COLA utilizing the CPI-E as a substitute of the broader CPI-W might disenfranchise all of the individuals who gather Social Safety advantages earlier than the age of 62, together with individuals with disabilities, surviving spouses and their kids.
Good to know even when the invoice stalls indefinitely
Whereas the jury is out on whether or not the CPI-E will ever be used to calculate the COLA for Social Safety, understanding this index is helpful.
In spite of everything, it displays what older adults spend cash on and may also help you anticipate any potential adjustments in the price of well being care and housing. That may provide help to alter your spending, saving and funding methods.
Plus, if something comes of the Boosting Advantages and COLAs for Senior Act, you’ll know what it means to you and your Social Safety advantages.
