COLAs may be imperfect, but they can help cover high living expenses.
December Social Security payments, important dates, and updates
Here are important dates for December Social Security payments and the latest updates, including January’s 2.8% cost-of-living adjustment.
The Social Security Cost of Living Adjustment (COLA) is designed to ensure that Social Security benefits keep pace with inflation. COLAs may not always feel like enough, but they can help ease the pain of price gouging.
Here are five important facts about COLA to help explain the details of this important Social Security benefit.
1. It all depends on CPI-W
CPI-W stands for Consumer Price Index for Urban Wage and Office Workers and is one of the key inflation indicators that tracks about 30% of the U.S. population. This is the metric that determines whether and how much COLA increases will be announced next year.
2. History paints an interesting picture
Looking back at the history of the COLA since 1975, it’s easy to see what was happening to the economy in the months before the COLA was announced. For example, when the 1980 COLA was announced, it was a whopping 14.3%. That’s no surprise, considering the inflation rate that year was 13.5%.
Since 1975, there have been only three years in which COLA did not increase: 2009, 2010, and 2015. Again, that makes sense considering that inflation in 2009 was -0.4%.
3. There may be a better way to calculate COLA
Groups representing older Americans and Social Security recipients are proposing an alternative method to calculating COLAs that they say is fairer for seniors. In its 2024 Purchasing Power Loss Report, the average Social Security payment has lost about 20% of its purchasing power since 2010. According to TSCL, much of this is due to the way COLAs are calculated.
CPI-W measures the cost of more than 200 everyday expenses divided into categories. So there are categories like housing, food, transportation, etc. The problem, TSCL says, is that the CPI-W measures price changes for urban wage earners, and the budgets of urban wage earners look very different from the budgets of the typical elderly person receiving Social Security benefits.
Instead, TSCL suggests using the Consumer Price Index for the Elderly (CPI-E). Similar to CPI-W, CPI-E measures prices. However, the categories are weighted differently to resemble the typical American senior’s budget. For example, older people spend a higher percentage of their income on housing, health care, and recreation. Urban wage earners spend a higher percentage of their income on transportation, food, education, and apparel.
Seniors advocacy groups believe that using the CPI-E more accurately reflects the proportion of COLA seniors needed to keep pace with inflation.
4. Your benefits will not be reduced.
Let’s say we experience another year like 2009 or 2015 when inflation was below 0%. No matter what happens, Social Security recipients won’t lose their previous COLA and their benefits won’t be cut to account for lower inflation. As with some retirement plans that pay a guaranteed interest rate, seniors don’t have to worry about their payments being reduced due to deflation.
5. COLA recipients are diverse.
It’s not just traditional retirees who will receive increased benefits. This adjustment is also useful for other groups such as:
- Disabled: Social Security Disability Insurance (SSDI) recipients also receive a COLA adjustment.
- Survivor: When a COLA increase is announced, widows, widows, and other beneficiaries of deceased workers will also see their benefits increased.
- SSI recipient: Those who receive Supplemental Securities Income (SSI) also receive an increase in their COLA. SSI is a program designed for elderly, low-income, blind, and disabled people.
COLAs may be imperfect, but right now they are Social Security recipients’ best chance to beat inflation.
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