Social Security benefits exist as a lifeline of financial support to tens of millions of vulnerable people across the country. For some of these individuals, their monthly benefit check may even be their sole source of income. As such, the effects of inflation that appears to be relentless can eventually have a detrimental impact on these households.
In order to prevent this, the Social Security Administration (SSA) implements an automatic increase to benefits on an annual basis. This increase is called the Cost of Living Adjustment (COLA) and it is aimed at countering the effects of year over year inflation, thereby allowing benefit checks to retain its buying power in the face of growing costs.
In order to determine exactly how much benefits need to be adjusted by, the SSA uses data from a subset of the CPI called Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W for the third quarter of the current year is measured against the same data for the same period of the previous year. If there is an increase from one year to the next, that percentage figure becomes the next COLA. For 2025, seniors across the country received a 2.5% increase in their benefit checks, with projections for the next COLA currently standing at 2.7%.
A new release from nonpartisan senior advocacy group The Senior Citizens League (TSCL) has revealed that “seniors miss out on thousands of dollars in Social Security payments due to bad government policy.” Here is what you need to know.
How is the annual COLA calculated?
Since 1975, the COLA has been calculated automatically using the CPI-W for the third quarter of the year. The CPI-W has over 200 spending categories used to measure the cost of a basket of goods and services at a point in time. The issue being raised by TSCL is regarding the accuracy of the CPI-W in measuring the expenses held by seniors.
Categories in the CPI-W vary in the weight they hold, and are all relative to the expenses generally held by a much younger cohort who are still working and would presumably have less health issues, and as such, require less medical care. In short, the result of using the CPI-W to measure inflation for senior citizens is a COLA that falls short in addressing its purpose.
For this reason, TSCL has advocated for switching over from the CPI-W to the CPI-E (Consumer Price Index for the Elderly) when calculating the COLA each year.
”The CPI-E has outperformed the CPI-W 69 percent of the time across the last 25 COLAs. On average, the CPI-E comes in at 2.7 percent, while the average CPI-W comes in at 2.6 percent. The CPI-E puts more emphasis on areas where seniors tend to spend more of their budget than younger Americans, such as housing and medical care,” TSCL found.
TSCL finds seniors are losing out on thousands of dollars
A new study by TSCL has also found that the cost of using the incorrect index is compounding losses for seniors with each passing year. According to the group’s findings, “if current long-term inflation patterns continue, the average person who retired in 2014 will lose about $8,000 of benefits across a 25-year retirement from using COLAs calculated with the CPI-W instead of the CPI-E. For someone who retired in 2024, we project that number to rise to just over $12,000.”
According to the findings of a survey previously conducted by TSCL, approximately 21.8 million seniors rely on their Social Security income alone, and switching to the CPI-E would bring financial relief to these millions of vulnerable individuals.
Bills to change over to the CPI-E have previously been introduced in Congress, however, nothing has ever been successfully passed as yet.
“If Congress continues to pass the buck on switching to the CPI-E, the problem is only going to get worse and worse. Current retirees’ Social Security benefits will fall further behind inflation, while future retirees won’t just fall behind—they’ll start from the back,” TSCL executive director Shannon Benton wrote.