Social Security's Annual Cost-of-Living Adjustment: A Look at 2024 and the Prospects for 2025
Sunday, 12 May 2024, 18:10
How Social Security determines the cost-of-living adjustment
Before delving into the shortcomings of the 2024 COLA, it's essential to grasp the method behind the COLA calculation:
- CPI-W Calculation: COLA based on CPI-W, reflecting urban wage earners' spending habits.
Two big problems with the COLA
- Backward-Looking System: Adjustment based on past inflation, causing delays in addressing current expenses.
- Calculation Issues: Using CPI-W for seniors' adjustments, diverging from actual changes in living costs.
The tweak to adopting CPI-E could provide fairer adjustments favoring retirees' real expenses.
Will 2025 be any different?
Forecasts hint at a higher COLA for 2025, anticipating improved adjustments reflecting seniors' cost of living. While inflation levels are expected to decrease, the decision on switching to CPI-E remains crucial in ensuring retirees' purchasing power.
This article was prepared using information from open sources in accordance with the principles of Ethical Policy. The editorial team is not responsible for absolute accuracy, as it relies on data from the sources referenced.