When it comes to Social Security, things will always be different. One of the big changes that happens almost every year is a rise in monthly benefits, which is good news. Going to the food store is a simple way to see that prices for goods and services are going up. The cost-of-living adjustment (COLA) in Social Security was made to help retirees keep their payments’ buying power.
If you are a beneficiary who wants to know when the next raise will be, remember that on October 10, the Social Security Administration will announce the official COLA percentage.
You can find out about the new COLA by going to the Social Security website and scrolling down to “Latest News.” On that page, you can read a news release about the COLA and find Social Security’s “Communications Corner,” which has other useful information for seniors.
How does the cost of living adjustment (COLA) impact annual Social Security checks?
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is usually used by the Bureau of Labor Statistics to figure out the COLA. It’s calculated every month and covers costs that city dwellers usually have, like the cost of food and groceries, basic household items, and other bills.
The BLS takes the means of the CPI-W data for July, August, and September and compares them to the same data from the previous year to find the COLA for the next year. If the CPI-W average goes from 200 to 210 in one year, the COLA would be set at 5% because the 10-point change is equal to 5% of 200.
On the other hand, Social Security never cuts monthly payments, so if the CPI-W average was 210 one year and 200 the next, there would be no reverse COLA. They only get bigger or stay the same.
There have been times when there was no COLA, though it doesn’t happen often (2010, 2011, 2016). There will be no way to know the exact COLA, though, until October 10, when Social Security releases the official number.
But a number of groups, such as the Senior Citizens League (TSCL), keep an eye on inflation and CPI-W statistics to make early predictions. It is important to note that the Senior Citizens League changed its COLA prediction from 2.57% in August to 2.5% in its most current estimates, which were released on September 11.
If the prediction comes close to the real number, it will be the lowest since 2021, when the COLA was 1.3% that year. It will also be less than the COLA’s average of 3.9% over the past 50 years.
Is the right approach to consider the CPI-W to calculate COLA and Social Security checks increase?
In one of its most recent studies, the nonpartisan senior group found that since 2010, the average Social Security payment has lost about 20% of its buying power. In other words, a dollar worth of benefits from back then is worth about $80 today.
That’s the main reason why some people have asked Social Security to find a different way to figure the COLA. The claim is that the CPI-W doesn’t properly show how much retirees spend and what they need, especially on healthcare, which is one of their biggest costs.
Some groups, like TSCL, have called for the Consumer Price Index for Americans 62 and over (R-CPI-E) to be used by Social Security. They know that there will never be a “perfect” figure. The cost of living goes up over time, which is more important for retirees than working people.
Before retirees get used to using CPI-W data, they need to learn how the cost of living adjustment (COLA) is calculated and how that affects their Social Security check increases. This is the case even if Social Security changes the way it calculates the COLA in the future. People have done things this way for fifty years, even though it might not be the best way to do things.
Also See:- An Announcement of Historical Social Security Numbers: A Problem for Millions of Americans