Because any potential cost-of-living adjustment should be baked into advantages at the beginning of the brand new 12 months, beneficiaries receive raises after they’ve already experienced higher prices. The COLA is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (called the C.P.I.-W): Social Security takes the common inflation reading from July, August and September of the present 12 months and compares that with the identical period from a 12 months earlier. Any increase ends in a pay bump.
There has long been a debate about whether the C.P.I.-W index is essentially the most accurate gauge to calculate Social Security adjustments since it tracks a basket of products and services purchased by working people, not retirees. Retired individuals are inclined to spend more of their income on housing and health care, which could also be higher reflected by one other experimental measure called the Consumer Price Index for the Elderly, or C.P.I.-E., which tracks people 62 and older.
“If that was the law today, the COLA in 2024 can be higher,” said Ms. Johnson, of the Senior Citizens League. She said the COLA adjustment can be about 1 percentage point higher than the raise announced on Thursday. The C.P.I.-E doesn’t at all times result in the next inflation adjustment, nevertheless, and differences between the 2 indexes have narrowed in recent times.
And some experts say that tinkering with the inflation mechanism has turn out to be a less important issue within the face of Social Security’s looming financing shortfall, which, if left unaddressed, would result in significant profit cuts across the board. The trust fund that pays retiree advantages, which is paid for primarily through payroll taxes, can be depleted in 2033, at which era this system could only fund 77 percent of total scheduled advantages.
The payroll tax is split between employers and employees, who each paid 6.2 percent of wages in 2023, as much as a taxable maximum income of $160,200. Next 12 months, as much as $168,600 of earnings can be subject to those taxes. The only technique to close the funding gap is to boost these taxes — or have them cover more earnings — or to shave advantages, all of which require congressional approval.
“The Social Security Administration puts out this book that has a whole bunch of the way to boost revenue and a whole bunch of the way to chop advantages,” said Alicia Munnell, director of the Center for Retirement Research at Boston College. “It just isn’t an mental exercise. It is a political exercise. And I don’t think Congress desires to see a cut of advantages of 23 percent across the board.”