One of Social Security’s most important dates is coming soon. Here’s why retirees should be careful.

When it comes to Social Security, the only thing you can consistently count on is change. Fortunately, one of the major changes that happens almost every year is a grow in monthly benefits. Prices for goods and services tend to rise over time — as a trip to your local grocery store could easily confirm. That’s why Social Security has the cost-of-living adjustment (COLA) to help retirees protect the purchasing power of their benefits.

On October 10, the Social Security Administration will release the official COLA. To check the new COLA, go to the Social Security website (SSA.gov) and scroll to the bottom until you see the “Latest News” section. There you’ll be able to find a press release for COLA, as well as the Social Security “Communication Corner,” which includes other important information for retirees.

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How Social Security Determines the COLA Amount

Social Security decides the COLA using the Consumer Price Index for Urban Wage and Service Workers (CPI-W). It is measured monthly and takes into account items such as food and grocery costs, common household items and other expenses that families living in urban areas face on a regular basis.

Social Security averages the CPI-W data for July, August, and September and then compares it to the previous year’s data to determine the next year’s COLA. For example, if the average CPI-W for one year is 200 and then 210 the following year, the COLA would be set at 5% because the 10-point change is 5% of the original 200.

Conversely, if the average CPI-W for one year is 210 and then 200 the following year, there would be no reverse COLA because Social Security never reduces monthly benefits. It just increases them or keeps them unchanged. There have been a few cases of missing COLA (2010, 2011, 2016), but it is not common.

What can you expect COLA to be?

There will be no way to know the exact COLA until Social Security releases the official number on October 10th. That said, there are organizations that closely track inflation and CPI-W figures to provide early estimates. Senior advocacy group The Senior Citizens League (TSCL) is one of them.

In its latest estimates released on September 11, TSCL had estimated COLA at 2.5%, down from 2.57% estimated in August. If the estimate turns out to be close to the final figure, it will be the lowest since 2021, when the COLA was 1.3 percent. It will also be below the 3.9% COLA has averaged over the past 50 years.

Should Social Security use CPI-W for COLA?

In one of its most recent studies, TSCL found that the average Social Security benefit has lost about 20 percent of its purchasing power since 2010. That means $1 in benefits back then is worth only about $0.80 today.

This is largely why there have been calls for Social Security to use a different metric to determine the COLA. The argument is that the CPI-W does not fully reflect the expenses and spending of retirees, especially health care, one of the biggest expenses of retirees.

There will never be a “perfect” measure to use, but some (including TSCL) have called for Social Security to begin using the Consumer Price Index for Americans 62 and Over (R-CPI-E). It measures expenditure inflation more relevant to seniors than to working-age people.

It remains to be seen whether Social Security eventually adjusts its COLA determination method, but in the meantime, retirees should be comfortable with the CPI-W data used. It may not be the best method, but it is the standard that has been used for the past five decades.