Price growth across the economy is currently showing signs of cooling, which is generally positive news for consumers. However, this deceleration in inflation could have repercussions for seniors and other Social Security recipients when the annual cost-of-living adjustment (COLA) is announced later this year. The Senior Citizens League, an organization that regularly forecasts Social Security COLA, has projected a modest increase of 2.63% in monthly checks for recipients, which is slightly up from the previous month’s forecast of 2.57%.
The method used by the Social Security Administration (SSA) to determine the COLA involves averaging the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) over the months of July, August, and September. The official announcement of the COLA change typically occurs in October. However, this approach sometimes results in Social Security payments not keeping pace with the overall rate of inflation. This discrepancy arises because price fluctuations, whether surges or declines, can occur at any point in the year, and the COLA calculation might not fully reflect these changes. Alex Moore, a Social Security and Medicare statistician at The Senior Citizens League and managing partner at Blacksmith Professional Services, has pointed out this limitation.
During the period from January 2020 to December 2023, for instance, while the CPI-W rose by a total of 20%, the cumulative increases in COLA payments over the same period amounted to only 19%. According to estimates by NBC News, if the COLA adjustments had matched the CPI-W increase, Social Security beneficiaries would have received an additional $10 per month by 2024. This discrepancy underscores the potential impact on fixed-income recipients, for whom every dollar matters significantly. The Senior Citizens League’s recent membership survey revealed that 34% of retirees had resorted to visiting food pantries or applying for food stamps in the past year due to financial constraints.
Moore emphasized the critical role of Social Security for many elderly households, noting that approximately half rely on these benefits to remain above the poverty line. As inflation moderates and the COLA potentially fails to fully compensate for actual increases in living costs, seniors may face heightened financial challenges. This situation underscores the ongoing importance of evaluating and potentially adjusting the COLA calculation methodology to more accurately reflect the true cost-of-living adjustments needed by Social Security recipients. Addressing these concerns is crucial to ensuring the financial stability and well-being of elderly Americans who rely on these benefits as a vital source of income.