If you've been on Social Security for a while, you've probably noticed that the annual cost-of-living adjustments (COLAs) usually don't lead to a better lifestyle. Often, they're not even enough to cover the rising costs of everyday items.
You're not alone. This is a known issue that goes directly to the heart of how the government calculates COLAs using the Consumer Price Index (CPI). But some are fighting to change that.
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How the CPI determines Social Security COLAs
The CPI is a measure of the average cost of a basket of goods and services, tracked over time. It focuses on common items across eight major categories: Food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services.
Several subsets of the CPI examine different segments of the population. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is the one used to calculate Social Security COLAs. The government looks at the change in average third-quarter CPI-W data each year, and that percentage becomes the new COLA. For example, the 2025 CPI-W average for Q3 was 2.8% higher than the 2024 average, so the 2026 COLA was 2.8%.
This sounds like a reasonable system, until you learn that the CPI-W is designed for households where at least one person has been employed for at least 37 weeks out of the last year. This actively excludes households where all members are retired, including many Social Security beneficiaries.
The CPI-E: A new standard for COLAs?
Senior households are actually tracked by a separate index -- the Consumer Price Index for the Elderly (CPI-E). While this looks at many of the same costs as the CPI-W, it weighs items differently. For example, the CPI-E weights medical expenses more heavily than the CPI-W does. This is important for seniors, who often spend more on healthcare than younger adults.
Many have argued that the Social Security Administration should base its COLAs on the CPI-E rather than the CPI-W, so COLAs better reflect senior spending habits. According to an analysis from The Senior Citizens League (TSCL), this would have resulted in a larger COLA in eight of the 10 years between 2014 and 2024, which would have put thousands more dollars into the average senior's pocket.
Some lawmakers have also made pushes to base COLAs on the CPI-E, but so far, nothing has gained any traction. This is likely because Social Security is only a few years away from insolvency. Higher COLAs would increase the program's expenditures and deplete its trust funds even faster. This doesn't mean a change like this will never happen. But it's unlikely to occur while Social Security is in such a precarious position.
What does that mean for Social Security beneficiaries?
Social Security beneficiaries will continue to receive COLAs based on the CPI-W for the foreseeable future. These increases, while better than nothing, may not be enough to cover all your rising costs. You might need to supplement them with additional funds from your retirement accounts or income from another source, such as a job or pension.
If you feel strongly that the Social Security Administration should start basing its COLAs on the CPI-E, you can also share your thoughts with your Congressional representatives. They're the ones with the power to make that change happen.
In the meantime, stay focused on what's within your control. Keep an eye on your spending, limit discretionary purchases when money is tight, and consider applying for other government benefits to help cover your essential living costs if you're really struggling to make ends meet.
