The Social Security Administration (SSA) recently revealed the 2024 Cost of Living Adjustment (COLA), a change that has left many beneficiaries feeling underwhelmed, especially those relying on these payments to keep up with inflation.
With rising living expenses, the increase in stimulus payments does not seem sufficient to meet the growing financial needs of many retirees.
How is the COLA Calculated?
The COLA is determined using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is the standard measure for inflation used by the SSA. However, this index does not accurately reflect the specific spending patterns of seniors.
The Elderly Consumer Price Index (CPI-E), which focuses more on medical costs—a major expense for retirees—is recommended by experts as a more suitable measure for older adults.
Social Security Payments for Retirees
As of last month, around 52 million retired beneficiaries received an average Social Security check of $1,978.77. While this amount might seem modest, it plays a crucial role in helping retirees cover their basic living expenses.
For seniors, a rise in the costs of essential goods and services, such as healthcare and housing, can impact their ability to afford daily necessities.
The Importance of COLA for Retirees
The COLA is designed to adjust Social Security benefits in line with the rising costs of living. If the average cost of goods purchased by seniors increases, and the Social Security benefits remain the same, retirees would see a decline in their purchasing power, making it harder for them to maintain their standard of living.
For instance, if the cost of goods increases by 3% over a year, and Social Security checks do not reflect this increase, seniors would be unable to purchase as much with the same amount of money. Therefore, the COLA plays a vital role in maintaining the purchasing power of Social Security payments.
Historical Trends in COLA Adjustments
Throughout the 2010s, COLA adjustments were minimal. In fact, there were three instances of deflation in the past 50 years—2010, 2011, and 2016—when no COLA increase was granted. The 2017 COLA marked the smallest increase in the history of the program, a mere 0.3%.
Latest Projections for COLA Against Inflation
In light of the January inflation report released by the Bureau of Labor Statistics (BLS), The Senior Citizens League (TSCL), a nonpartisan senior advocacy group, revised its 2026 COLA forecast, increasing it from 2.1% to 2.3%. This adjustment would result in an average monthly increase of $46 for retired workers.
Meanwhile, Mary Johnson, an independent Social Security and Medicare policy analyst, predicts a 2.1% COLA for 2026. This revision was prompted by a slight reacceleration in the inflation rate, which increased by 0.5% in January—the highest monthly increase since August 2023. Over the past 12 months, the CPI-U (a broader inflation measure) has risen by 3%.
Social Security COLA History
| Year | COLA Percentage | Notable Changes |
|---|---|---|
| 2010 | 0.0% | No COLA due to deflation |
| 2011 | 0.0% | No COLA due to deflation |
| 2016 | 0.0% | No COLA due to deflation |
| 2017 | 0.3% | Lowest COLA in history |
| 2024 | Expected to be lower than needed | Inflation continues to outpace COLA |
The COLA for 2024, while intended to help seniors keep pace with inflation, is unlikely to sufficiently cover the increased living expenses, particularly those related to healthcare.
As inflation continues to outpace the COLA, many retirees are left feeling financially strained. Adjustments to how the COLA is calculated, like using the CPI-E, could provide more relief to those who need it the most.
FAQs
Why is the COLA not sufficient to keep up with inflation for retirees?
The COLA is based on the CPI-W, which does not fully reflect the specific needs of older adults, especially in terms of medical costs. This means that the COLA fails to keep up with the rising costs that retirees face, such as healthcare expenses.
What is the CPI-E and why do experts recommend it?
The CPI-E (Elderly Consumer Price Index) is a better measure of inflation for seniors because it focuses more on the costs associated with aging, such as healthcare. Experts argue it should be used for adjusting Social Security benefits instead of the CPI-W.
How do COLA increases impact Social Security payments?
Each COLA increase adjusts Social Security payments to help beneficiaries maintain their purchasing power despite rising prices. Without it, retirees would experience a decline in their ability to purchase essential goods and services.