There's one thing you can always rely on when it comes to this social security is change. Fortunately, increasing monthly benefits is one of the big adjustments made almost every year. You can easily see that the prices of products and services are increasing when you take a trip to your local grocery store. Social Security's cost of living adjustment (COLA) was created to help retirees maintain the purchasing power of their payments.

Beneficiaries interested in the next increase should keep in mind that the Social Security Administration will announce the official COLA percentage on October 10th. To review the new COLA, go to Social Security website and scroll down to the Latest News section. There you will find a press release about the COLA as well as the Social Security “Communications Corner,” which contains other important information for retirees.

How does the cost of living adjustment (COLA) affect annual Social Security checks?

Generally, the Bureau of Labor Statistics uses the Consumer Price Index for Urban Wage Earners and Office Workers (CPI-W) to determine the COLA. It is calculated every month and includes expenses that urban households commonly incur, such as: B. the prices of food and groceries, basic household goods and other bills. To calculate the COLA for the coming year, the BLS averages the CPI-W data for July, August, and September and then compares it to the previous year's data. For example, if the CPI-W average is 200 one year and 210 the next, the 10-point shift is 5% of the original 200, so the COLA would be set at 5%.

On the other hand, Social Security never goes down monthly benefitsthere would be no reverse COLA if the CPI-W average was 210 one year and 200 the next. It just makes them bigger or stays the same. Although not typical, there have been some cases where no COLA was consumed (2010, 2011, 2016). However, there will be no way to know the exact COLA until Social Security releases the official number on October 10th.

However, several groups monitor inflation and CPI-W data to make early forecasts, including forecasts of the Senior League (TSCL). It is important to highlight that after estimating 2.57% in August, the Senior Citizens League revised its COLA forecast to 2.5% in its most recent estimates released on September 11th. The forecast will be the lowest since 2021, when the COLA was 1.3%, if it turns out to be close to the final value. It will also be below the 50-year average COLA of 3.9%.

Is it the right approach to consider the CPI-W when calculating COLA and increasing Social Security checks?

In one of its recent studies, the nonpartisan seniors group found that the typical Social Security payout has lost about 20% of its value purchasing power since 2010. That means a dollar in benefits was worth about $0.80 back then. This is primarily why Social Security was required to use an alternative method of calculating COLA. The argument is that the CPI-W does not accurately reflect retirees' spending and expenses, particularly in health care, which is one of their largest expenses.

Although there will never be a “perfect” statistic, some, like TSCL, have advocated for Social Security to begin using the Consumer Price Index for Americans Age 62 and Over (R-CPI-E). It captures the inflation of costs that are more important for retirees than for working people. After analyzing how the cost of living adjustment (COLA) is calculated and its impact Social Security checks are increasingIn the meantime, retirees will have to get used to using CPI-W data, regardless of whether Social Security ultimately changes its methodology for calculating the COLA. For the past 50 years, this approach has been the norm, although it may not have been the ideal one.