A Brief History of the Social Security Cost-of-Living Adjustment (COLA)
In October, we will find out how much additional money retirees will receive next year in Social Security benefits. To help keep up with inflation, the Social Security Administration (SSA) has been providing recipients with annual cost-of-living adjustments (COLAs) since 1975. Before that time, benefit increases were set by legislation.
COLA Calculator
The first COLA, which was set in June 1975, was based on the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the second quarter of 1974 to the first quarter of 1975.
According to the SSA, “Subsequent COLAs were based on increases in the CPI-W from the first quarter of the prior year to the corresponding quarter of the current year in which the COLA became effective.”
That changed in 1983 when Social Security COLAs started being based on increases in the CPI-W from the third quarter of the prior year to the corresponding quarter of the current year in which the COLA became effective. That means, that once the September figures are released, the Social Security Administration can crunch its numbers and release the 2025 COLA.
2025 COLA Prediction
Early predictions are that we could see the lowest COLA in four years. According to an article by Kiplinger, analysts think the 2025 COLA could be as low as 2.6 percent. That’s lower than this year’s 3.2 percent and much smaller than 2022’s 8.7 percent. There’s a possibility that the 2025 COLA could be even lower because inflation has been improving.
Better COLA Calculator
One surefire way to provide retirees with bigger benefits would be to change how the Social Security COLA is calculated. Instead of using the CPI-W, they should use the Consumer Price Index for Americans aged 62 or older (CPI-E), as this price index more accurately reflects the costs incurred by older adults. For instance, healthcare expenses, which have a greater impact on older Americans, are weighted more heavily in the CPI-E than in the CPI-W.
The Seniors Trust fully supports this move. It’s just one of the reasons why we want Congress to enact the Social Security Expansion Act. It will establish a fairer cost-of-living adjustment (COLA) by using the Consumer Price Index for the Elderly (CPI-E) instead of the Consumer Price Index for Urban Wage Earners (CPI-W) used currently. The CPI-E takes the unique spending habits of seniors into account — particularly regarding the cost of healthcare — and offers a more realistic COLA for retirees.
