When it comes to Social Security , the one thing you can consistently count on is change. Thankfully, one of the major changes that happens almost every year is an increase in monthly benefits. Prices for goods and services tend to increase over time -- which a trip to your local grocery store could readily confirm. That's why Social Security has its cost-of-living adjustment ( COLA ) to help retirees protect the purchasing power of their benefits.
On Oct. 10, The Social Security Administration will release the official COLA. To check the new COLA, head to the Social Security website (SSA.gov) and scroll near the bottom until you see the "latest news" section. That's where you will be able to find a press release for the COLA as well as Social Security's "Communications Corner," which includes other important information for retirees.
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How Social Security determines the COLA amount
Social Security decides the COLA using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). It's measured monthly and takes into account items such as the costs of food and groceries, common household items, and other expenses that families living in urban areas regularly face.
Social Security averages the CPI-W data for July, August, and September and then compares it to the previous year's data to determine the COLA for the upcoming year. For instance, if the CPI-W average for one year is 200 and then 210 the following year, the COLA would be set at 5% because the 10-point change is 5% of the starting 200.
Conversely, if the CPI-W average for one year is 210 and then 200 the following year, there wouldn't be a reverse COLA because Social Security never reduces monthly benefits. It only increases them or keeps them unchanged. There have been a few instances of no COLA (2010, 2011, 2016), but it's not common.
What can you expect the COLA to be?
There will be no way to know the exact COLA until Social Security releases the official number on Oct. 10. That said, there are organizations that keep a close eye on inflation and CPI-W numbers to provide early estimates. The senior advocacy group The Senior Citizens League (TSCL) is one of them.
In its latest estimates released on Sept. 11, TSCL had its COLA estimate at 2.5%, down from the 2.57% it estimated in August. If the estimate turns out to be close to the final number, it'll be the lowest since 2021, when the COLA was 1.3%. It will also be below the 3.9% that the COLA has averaged in the past 50 years .
Should Social Security be using CPI-W for the COLA?
In one of its latest studies, TSCL found that the average Social Security benefit has lost around 20% of its buying power since 2010. That means $1 of benefits back then is only worth around $0.80 today.
That's largely why there have been calls for Social Security to use a different metric to determine the COLA. The argument is that CPI-W doesn't fully reflect retirees' expenses and spending, especially healthcare, one of retirees' largest expenses.
There won't ever be a "perfect" metric to use, but some (including TSCL) have called for Social Security to start using the Consumer Price Index for Americans 62 years of age and older (R-CPI-E). It measures the inflation of expenses more relevant to seniors than working-age people.
Whether Social Security eventually adjusts its method for determining the COLA remains to be seen, but in the meantime, retirees should get comfortable with CPI-W data being used. It may not be the best method, but it's the standard that's been used for the past five decades.
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