More than 57 million retirees depend on Social Security, and each year their benefits usually go up slightly through a Cost-of-Living Adjustment, or COLA. This increase is meant to keep pace with inflation and is based on data from the CPI-W, a price index tracked by the Bureau of Labor Statistics (BLS). But recent changes at the BLS have sparked concerns about how reliable that data and the resulting COLA, will be moving forward.
City Data Cuts Spark Worries
In recent months, the BLS stopped gathering inflation data from Lincoln, Nebraska, and Provo, Utah in April, and from Buffalo, New York in June. The move was prompted by staffing shortages, mainly due to a hiring freeze and limited funding. While the agency claims the missing data will have little effect on the national Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), some economists aren’t convinced.
Shannon Benton of the Senior Citizens League warns that dropping cities with potentially higher inflation could drag the CPI-W down. That would mean smaller cost-of-living increases for retirees, shrinking their actual buying power. There’s no sign the data is being tampered with, but the missing coverage is adding a level of uncertainty that’s raising red flags for some economists.
Why the COLA Calculation Matters
The calculations of COLA is straightforward. The Social Security Administration (SSA) looks at the average CPI-W from July to September and compares it to the same months the year before. If there’s a rise, the increase is rounded to the nearest tenth of a percent and added to benefits starting in January. If there’s no change, benefits stay flat, COLAs can’t go down.
Here’s a quick refresher on how to estimate the COLA yourself:
- Subtract last year’s third-quarter average CPI-W from this year’s.
- Divide the difference by last year’s average.
- Multiply the result by 100 to get a percentage.
- Round to the nearest tenth of a percent.
For 2024, the average CPI-W for July, August, and September was 308.729. Once this year’s third-quarter numbers come out, people can use this formula to get a rough idea of their 2025 COLA.
The Hidden Costs of Lower COLAs
At first, a smaller COLA might not seem like a big issue. If one year’s adjustment is too low, the following year starts from that reduced amount, and the gap grows over time. That can cost retirees thousands over the course of their retirement.
Last year’s COLA was 2.5%, a modest bump since inflation had begun to cool. It highlights the trade-off retirees face: high inflation hurts now but leads to bigger COLAs, while lower inflation helps in the short term but means smaller benefit increases later.
Bigger Picture: Why Accuracy Matters More Than Ever
Social Security was originally meant to cover about 40% of a person’s income in retirement. Today, that number is closer to 39% for someone retiring at 65, partly because the full retirement age is gradually rising to 67. On top of that, the program is facing long-term financial trouble, experts say the trust funds could be depleted by the mid-2030s, which might lead to benefit cuts of up to 23%.
That’s why getting the COLA right matters more than ever. If it’s too low, retirees struggle to keep up with rising costs. But if it’s too high, it could speed up the system’s financial decline by pushing payouts beyond what the program can afford.
Bottom Line
The recent BLS cutbacks might look small on paper, but they could have big consequences for seniors who count on every dollar. The pressure of inflation is still affecting household budgets and with questions around the future of Social Security, it’s more important than ever that COLA adjustments match the real cost of living. All eyes will be on the 2025 figures to see how this plays out.