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]