When calculating the annual cost-of-living adjustment (COLA) for Social Security payments, the Social Security Administration (SSA) bases it on data collected by the Bureau of Labor Statistics (BLS), specifically the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
However, there is another index put together by the BLS– the Consumer Price Index for the Elderly (CPI-E)– that some argue could give Social Security recipients a higher payment if it were used to calculate the annual COLA.
How the COLA is calculated
The way it works now is that the SSA compares the average CPI-W for the third quarter of the current year with the average CPI-W for the previous year. The percentage increase is rounded to the nearest tenth of a percentage and applied to benefits.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If there is no percentage increase, there is no COLA increase. The benefit levels are never cut, even when there is a drop year-over-year in the price index. The COLA increase for 2026 won’t be out until October. As of now, The Senior Citizens League (TSCL) predicts the 2026 COLA will be 2.6%.
The CPI-W tracks the prices of a basket of goods that includes food and beverages, housing, apparel, transportation, medical care, recreation, education and communication. The CPI-E tracks the same baskets of goods but gives more weight to items that older adults are likely to purchase more frequently, including housing and health care. The CPI-W gives more weight to transportation and food.
Should the COLA be based on the CPI-E?
Because of the difference in weighting, proponents of switching the COLA to the CPI-E say the CPI-E better reflects what older adults spend their money on and thus could increase the annual COLA.
Any increase, they argue, is welcome, given that many older adults are living on a fixed income and rely on Social Security as their sole means of cash flow in retirement.
That’s the thinking behind the Boosting Benefits and COLAs for Seniors Act, which was introduced into legislation in March 2024 by Senator Bob Casey, D-Pa. Co-sponsors of the bill include Sens. Richard Blumenthal, D-Conn.; Peter Welch, D-Vt.; John Fetterman, D-Pa.; Kirsten Gillibrand, D-N.Y.; and Bernie Sanders, I-Vt.
The legislation is still making the rounds, and it isn’t clear if it will ever become law, especially with the Republicans in power and against a backdrop in which Social Security will face insolvency in 2033. If no action is taken at that point, the fund will only cover 77% of the scheduled benefits.
What's in the bill?
The bill calls for the SSA to adjust Social Security benefits based on the CPI-E instead of the CPI-W, arguing it would result in a larger increase in payments. It also calls on the BLS to calculate and publish the CPI-E monthly.
“It is critical that we protect and expand benefits for older adults who rely on them, and the Boosting Benefits and COLAs for Seniors Act will make much-needed changes to the COLA calculation, resulting in higher benefits that are reflective of the experiences of older adults,” Senator Casey said when introducing the legislation.
The bill has the backing of several organizations, including the Alliance for Retired Americans, the National Committee to Preserve Social Security and Medicare and Social Security Works, among others.
Still, critics argue that calculating the COLA using the CPI-E instead of the broader CPI-W could disenfranchise all the people who collect Social Security benefits before the age of 62, including people with disabilities, surviving spouses and their children.
Good to know even if the bill stalls indefinitely
While the jury is out on whether the CPI-E will ever be used to calculate the COLA for Social Security, understanding this index is useful.
After all, it reflects what older adults spend money on and can help you anticipate any potential changes in the cost of health care and housing. That can help you adjust your spending, saving and investment strategies.
Plus, if anything comes of the Boosting Benefits and COLAs for Senior Act, you’ll know what it means to you and your Social Security benefits.
Related content
-
The 'Vinyl Rule' of Retirement: Plan for Two Sides in Your Next ActBecause “Life is what happens when you’re busy making other plans.”
-
Five Destinations for Active and Chill Travelers AlikeWhether you reach for a paddleboard or a lounge chair, find your groove in a location that offers something for both kinds of travelers.
-
The 'Vinyl Rule' of Retirement: Plan for Two Sides in Your Next Act
Because “Life is what happens when you’re busy making other plans.”
-
Five Destinations for Active and Chill Travelers Alike
Whether you reach for a paddleboard or a lounge chair, find your groove in a location that offers something for both kinds of travelers.
-
I'm a Financial Planner: Here Are Five Phases of Retirement Planning You Have to Get RightA solid retirement plan is a must, but you can't go halfway. Neglecting just one area of your plan could cause the whole thing to collapse.
-
Medicare Prior Authorization Expands to Ambulatory Surgical CentersStarting in December, Medicare will begin requiring prior authorization for certain procedures when performed in ambulatory surgical centers.
-
Seven Guilt-Free Ways to Spend Your Retirement CashYou may be reluctant to spend in retirement, but if you have the extra cash, here are seven ways you'll feel good doing it.
-
Greed, Fear and Market Volatility: A Financial Adviser's Guide to Keeping Emotions Out of Investment DecisionsDon't panic! And don't be so confident in the stock market that you overlook risk. Instead, be logical. Your retirement security could depend on it.
-
Want a Financial Adviser Who Shares Your Faith? Look for One With a CKA DesignationFinancial professionals with a Certified Kingdom Advisor certification are committed to integrating biblical principles with sound financial advice.
-
Is a 'Working Retirement' the Key to Happiness for Men?You may want to reconsider your retirement game plan if you're a man.
