Recently, the Social Security Administration announced that beneficiaries of the program will be getting a 3.2% cost-of-living adjustment, or COLA, for 2024. In light of 2023's generous 8.7% COLA, that raise reads like a disappointment. But actually, it's not a totally bad thing.
Social Security COLAs are tied directly to inflation. So a smaller COLA for 2024 is indicative of the fact that inflation levels have cooled over the past 12 months.
Still, one could argue that seniors on Social Security are getting a bit ripped off in 2024, and it's because of the way the program's COLAs are measured. In fact, some advocates claim recipients have been getting ripped off for years, which is why they're pushing for a big change in the way COLAs are calculated.
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A senior-specific index is needed to determine Social Security raises
Social Security COLAs are based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a subset of the more well-known Consumer Price Index (CPI). The index is generally considered to be an accurate measure of broad inflation. But it's not necessarily an accurate measure of senior-related inflation.
The costs that Social Security recipients tend to face can differ tremendously from the costs faced by urban wage earners and clerical workers. Gas prices, for example, play a big role in the CPI. But that's not necessarily a particularly heavy cost for Social Security beneficiaries, since many are retired and don't commute to a job.
It's for this reason that advocates have pushed for a senior-specific index to be used to calculate Social Security COLA -- a CPI-E, with the E standing for Elderly. That index would place a lot of weight on the costs that tend to eat up large portions of seniors' income -- things like healthcare, more so than gas.
In fact, a recent analysis by the nonpartisan Senior Citizens League finds that if Social Security COLAs were to be calculated based on a senior-specific index, in 2024, beneficiaries would be in line for a 4% raise instead of just 3.2%. That's a big difference.
Will changes come down the pike?
This isn't the first time senior advocates have pushed for a better way to calculate Social Security COLAs. Social Security beneficiaries have been losing buyer power for years as COLAs have failed to adequately help them keep up with senior-specific expenses.
The recently introduced Social Security 2100 Act aims to change the way Social Security COLAs are determined. But whether that change will actually get signed into law is a different story. That's unfortunate, because many seniors who get most of their income from Social Security are already struggling financially and need relief.
Granted, retiring on those benefits alone generally isn't advisable, but some people's paychecks and expenses don't allow them an opportunity to build up a nest egg during their careers. As such, there are many seniors today who are stuck relying heavily on Social Security. And if COLA changes don't arrive, those seniors might see their financial struggles grow in the coming years.
