Since the Social Security Administration (SSA) announced it on October 10, the cost of living adjustment (COLA) for Social Security benefits has caused a lot of debate.
For beneficiaries to make sure they don’t lose too much purchasing power, this is how much their benefits will go up each year to keep up with inflation.
The COLA won’t start until the new year, even though the increase was announced in October. This gives beneficiaries some time to plan their new budget and figure out how this extra money will cover their costs.
What is the COLA increase for Social Security benefits?
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to figure out the COLA. The CPI-W is a monthly report from the Bureau of Labour Statistics that shows how prices for goods and services have changed on average.
The SSA compares the CPI-W from the third quarter of the year (July to September) to the same time last year. The new COLA is equal to the difference between the two. When inflation is high, the COLA goes up, and when inflation is low, it goes down.
The number for this year’s increase in benefits was 2.5%. This is because inflation went down in the summer after being higher than the 2024 COLA for most of the year. But it’s not just retirement benefits (the ones most people think of as Social Security) that are going up.
All benefits managed by the SSA will go up in the new year, including survivors benefits, retirement benefits, Social Security Disability Insurance, and Supplemental Security Income.
Will the 2,5% increase be enough for retirees
Since years ago, there have been doubts about whether the CPI-W is a good enough index to figure out benefits. Most of the 72.5 million Americans who get Social Security and Supplemental Security Income are seniors or disabled, so things like medical bills are a lot harder for them than for young professionals who are working.
The costs of housing are also higher because they have more specific needs, which makes it harder to find places to live and costs more.
The Senior Citizens League, a nonpartisan group that speaks up for older people, has been predicting a 2.5% COLA increase since before the summer. They have also been pushing for a change in the index that is used to calculate it because the current CPI doesn’t meet the needs of the elderly well enough.
In response to the latest COLA news, Shannon Benton, Executive Director of TSCL, said, “Our research shows that 67% of seniors depend on Social Security for more than half their income and that 62% worry their retirement income won’t even cover basics like groceries and medical bills.”
The league isn’t saying this without concern; a recent poll of 3,000 older Americans found that 72% said Congress should make it a top priority to change the COLA calculation to an index that better shows how seniors’ costs are changing.
The index they’d like to see used is the CPI-E. It’s the same as the CPI-W, but the categories are more focused on the needs of people over 62, with higher weights given to housing and healthcare costs. As a result, this index is usually higher than the CPI-W. This means that it would have given beneficiaries a rise that was more in line with their actual costs.
The CPI-W is also used by Medicare, the Supplemental Nutrition Assistance Program (which includes food stamps and other programs), and other government programs to set their own limits and keep up with inflation. This means that a correct increase would have a big impact on many people who receive these benefits.
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