Understanding Social Security’s Cost-of-Living Increase

There’s been a lot of talk in the news recently about COLA — and they’re not discussing soda. The focus has been on Social Security’s cost-of-living adjustment. Next year, recipients will see one of the biggest benefits boosts in about forty years because of the historically high inflation we’ve been experiencing. The 2023 COLA will be XXX percent.

It’s important to note that we didn’t always have a COLA. The first automatic annual adjustment was paid in 1975, but Congress paved the way for it with legislation passed in 1972. Prior to then, COLAs were awarded periodically by lawmakers, and they were typically for large amounts. For example, there was a 20 percent increase in 1972 and two increases in 1974 totaled 18 percent.

COLA Combats Inflation

According to an article in The New York Times, today inflation dictates the annual benefit adjustment. It calls COLA one of Social Security’s most valuable features because it helps combat inflation by holding benefits steady against the erosion of rising prices.

The problem is that COLA is calculated using the C.P.I.-W., which reflects price changes for a group of goods and services bought by working people, not retirees. Inflation affects retirees differently. Seniors tend to spend more on health care and housing and less on food, beverages and transportation.

Many policymakers — along with The Seniors Trust — think the C.P.I.-E. (E is for elderly) should be used instead because it is a better gauge of the actual inflation experienced by seniors. We believe switching to using the C.P.I.-E. would provide a much fairer cost-of-living adjustment for retirees.

Changing the COLA calculator is just one of the main tenets of the Social Security Expansion Act. This landmark piece of legislation would also provide retirees with an immediate Social Security benefits boost. It calls for increasing monthly benefits by about $200 on average, which would help put more money in the pockets of deserving retirees.