Social Security uncertainty and policy changes are driving more people to submit
With the huge increase in social security applications, retirees are facing financial decisions affected by law and economic concerns in today’s climate.
Scripps News
To accommodate price increases, Social Security applies the annual cost of living adjustment (COLA), which is effective every January.
Senior Citizens League (TSCL), a nonprofit organization that advocates for advanced rights, publishes COLA estimates based on inflation data. The latest forecast released on June 11th shows TSCL forecasts 2.5% COLA for 2026. This is the same as in 2025, but is below the average of 3.4% since 1975.
The official Coke will not be announced by the Social Security Agency (SSA) until October, but it is worth paying attention to the estimate, so if you become a retiree now and soon, you can start a financial plan accordingly.
How Social Security determines annual cola
To determine the percentage of Coke set up each year, Social Security takes into account the consumer price index for urban wage workers and administrative workers (CPI-W).
CPI-W is a measure of inflation published monthly by the Bureau of Labor Statistics (BLS). Find prices for general costs such as housing, food, transportation, and healthcare. Here is the steps Social Security will calculate the cola.
- Average CPI-W data for the third quarter of this year (July, August, September).
- Compare this year’s average with the previous year’s average.
- If it increases, set COLA to match the increase in the percentage. If it decreases or stays the same, there is no cola.
For example, if this year’s CPI-W average is 3% higher than the previous year, the cola that will enter next year will be set at 3%.
How has cola been shaped in recent years?
Social Security retirement benefits began in 1940, but the annual Coke wasn’t like that until 1975. Since then, the average annual cola was 3.4%, but that amount has been very different. The best cola ever was in 1980, at 14.3%. The lowest colas came in 2010, 2011 and 2016 when there were no profit growth. Here are the last 10 colas:
Data Source: SSA.
Is CPI-W the best metric to use to determine cola?
The annual cola is highly regarded, but it is not always maintained in enough inflation to reasonably cancel it. According to TSCL, the purchasing power of Social Security benefits has declined by 20% since 2010. This means that the $1 benefit is currently worth around $0.80. Not ideal.
One issue raised is that CPI-W may not be the best measure of inflation when considering general costs among retirees. For example, CPI-W does not include specific medical expenses such as long-term care and prescription medications, which are major costs for many retirees.
One proposed change is to use the Elderly Persons (CPI-E) Consumer Price Index (CPI-E) that applies to people over the age of 61 to determine the annual Social Security Coke. CPI-E gives more weight to healthcare and housing costs, and is usually higher than CPI-W data.
A study by the Congressional Research Services (CRS) showed that using CPI-E vs CPI-W would result in greater COLAS and higher monthly Social Security benefits. Since 1986, cola based on CPI-E has been as good or better than all COLAs except six years.
I don’t know if the COLA process will be revamped. So for now, I’m stuck with using CPI-W data for the near future. It’s not perfect, but it’s the reality right now. The best thing a retiree can do is to prepare for what could be below average cola and start planning accordingly.
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