Understanding How Social Security Calculates Its COLA
Inflation impacts everyone, but especially retirees relying on Social Security benefits for their income. That is one of the reasons why the Social Security Administration instituted an annual cost-of-living adjustment (COLA). It ensures that recipients’ purchasing power remains the same even when prices increase due to inflation. The COLA can fluctuate from year to year, and some years there might not be one at all.
The 2026 Social Security COLA will be announced in October. With that date approaching, now seems like a great time to look into how the Social Security COLA is calculated.
According to an article by Bankrate.com, “the cost-of-living adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a measure of inflation calculated by the Bureau of Labor Statistics (BLS).”
To gather that information, the BLS surveys approximately 7,000 individuals and families every three months to gather information on their spending on things they buy regularly. The BLS data collectors also call retail stores, doctors’ offices, and service establishments to determine the price changes for the approximately 80,000 items included in the CPI-W. The CPI-W is then used to calculate the COLA. If there is no change, then there is no COLA for the following year.
The Problem
Many people think therein lies the problem. The article explains that because the CPI-W is “based on a basket of products reflecting the spending of younger, working people, some critics say it doesn’t accurately measure the inflation experienced by older retirees.”
The Solution
Many senior advocates, including The Seniors Trust, believe the CPI-W is the wrong inflation measure to use. We believe the Consumer Price Index for the Elderly (CPI-E) would be a better measure for calculating the Social Security COLA. It puts more weight on categories, such as healthcare and housing, that impact seniors more.
That imbalance would be corrected if the Social Security Expansion Act is passed. It calls for adopting the CPI-E as the COLA calculator, better ensuring that Social Security benefits keep pace with inflation.
Additionally, this landmark piece of legislation would also extend the solvency of the Social Security trust fund through 2096, expand Social Security benefits by about $200 a month for current and new beneficiaries, require millionaires and billionaires to pay their fair share into Social Security by lifting the wage cap, and improve the Special Minimum Benefit for Social Security recipients which would help low-income workers stay out of poverty.
Is this something you can get on board with? Join us in urging Congress to enact the Social Security Expansion Act. You can show your support by signing our petition.
