Core Insights - The inflation faced by older Americans, as measured by the consumer price index (CPI), is often higher than the Social Security annual cost of living adjustment (COLA), leading to a gap that erodes purchasing power [1] - The upcoming COLA increase of 2.8% in January may not keep pace with the rising costs of essentials like groceries, medicine, and housing, which are estimated to increase by about 3.1% [1] - Only 22% of Americans aged 50 and above believe the COLA will be sufficient to cover their living expenses [1] Summary by Sections COLA Calculation Issues - The Social Security COLA is based on the CPI for urban wage earners and clerical workers (CPI-W), which does not accurately reflect the spending patterns of retirees [1] - Alternative measures like the CPI-E, which focuses on costs for individuals aged 62 and older, show that essential expenses such as healthcare and housing have been rising faster [1] - Over the past 25 years, the CPI-W has fallen short of the CPI-E in 18 out of 26 years, averaging 0.2% lower annually [1] Financial Impact on Retirees - Retirees who began collecting benefits in 1999 have lost nearly $5,000 in lifetime payments compared to what they would have received under the CPI-E [1] - For those retiring in 2024, the gap is projected to exceed $12,000 over a 25-year retirement [1] - Advocacy groups like AARP and TSCL have been pushing for a change in the inflation measure used for COLA calculations to better reflect the financial pressures faced by older Americans [1] Future Considerations - The 2.8% COLA for 2026 is viewed as insufficient, with a potential 3.1% increase if the CPI-E were used instead [1] - The 0.3% difference may seem minor but compounds over time, further eroding purchasing power in retirement [1] - Any change to the COLA calculation method would require federal legislative action, and failure to do so may worsen the situation for current and future retirees [1]

Core Insights - Social Security benefits will increase next year due to the annual cost-of-living adjustment (COLA), but there is a debate on whether a more suitable inflation measure should be used for benefit updates [1][5]. Inflation Measurement Debate - The Senior Citizens League (TSCL) reported that the current inflation measure, CPI-W, results in smaller COLAs compared to an elderly-focused measure, CPI-E [2][3]. - The average CPI-E is approximately 0.1 percentage points higher than CPI-W, with CPI-W tracking inflation for urban wage earners and CPI-E focusing on Americans aged 62 and older [3]. Financial Impact on Retirees - TSCL estimates that retirees from 1999 could have received about $5,000 more in benefits over 25 years if CPI-E had been used instead of CPI-W, while those retiring in 2014 could have seen an increase of over $8,000 [4]. - A statistician from TSCL indicated that a retiree in 2024 could lose around $12,000 over their retirement due to the current COLA calculation method [7]. Legislative Context - The Social Security Administration is mandated to use CPI-W for COLA calculations, requiring Congressional action to change this formula [8]. - Previous attempts by Democratic lawmakers to change the formula have not progressed in Congress [8]. Limitations of CPI-E - The Bureau of Labor Statistics (BLS) acknowledges that while CPI-E has been considered, it has limitations such as a smaller sample size and higher sampling errors [10]. - Critics argue that CPI-E is an unreliable index that may overstate inflation due to its narrow sample size and failure to account for consumer behavior in response to price changes [11]. Alternative Measures - A better alternative suggested is the chained CPI, which addresses the flaws of CPI-E and more accurately reflects consumer responses to price changes [14]. - An analysis from the Cato Institute found that from 2013 to 2022, CPI-W overstated the cost of living increase by 0.26 percentage points compared to chained CPI [15].