Latest news with #CPI-E
Yahoo
18-04-2025
- Business
- Yahoo
This Estimate of Social Security's 2026 Cost-of-Living Adjustment (COLA) Was Just Revised. Here's How Tariffs Could Impact Your Benefits.
Millions of American seniors rely on Social Security to make ends meet. Half of households with someone age 65 or older rely on the government program for the majority of their incomes, according to data reviewed by the Social Security Administration. That makes the annual cost-of-living adjustment, or COLA, an extremely important number for households trying to keep up with the rising costs of goods and services. While we're still about six months away from determining the exact raise Social Security beneficiaries will receive in 2026, early data suggests seniors might be disappointed with next year's increase. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue » Tariffs could change all of that. Here's where things stand today and how tariffs could impact your benefits next year. The cost-of-living adjustment, as the name implies, is designed to help keep Social Security in line with the cost of living. While Social Security began sending out monthly checks in 1940, Congress didn't automate the system for calculating the COLA until 1975. The COLA is now based on a measure of inflation called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This is a single number released by the Bureau of Labor Statistic each month aggregating price changes in over 200 spending categories. The number changes based on whether prices went up or down for each category. In order to calculate the COLA in time for January benefits checks, the Social Security Administration uses the average year-over-year increase in the CPI-W during the third quarter. That number becomes the following year's COLA. If it's negative, seniors won't see any adjustment. Many argue the CPI-W doesn't reflect the true costs seniors face today. The Bureau of Labor Statistics developed a new CPI reading in 1987, which weighs the various spending categories to align with the expenses of Americans age 62 and older. It's called the Consumer Price Index for the Elderly, or CPI-E, and many feel the COLA should be based on those readings, instead. While the CPI-E and CPI-W can vary considerably from year to year, over the last 15 years, they've produced similar cumulative results. For now, Social Security is still using the CPI-W, and one forecast suggests it could result in a disappointing COLA for 2026. Senior advocacy group The Senior Citizens League publishes updates to its forecast for the COLA after every monthly CPI release from the Bureau of Labor Statistics. The most recent release came on April 10, which showed March CPI-W came in 2.2% higher than the same month last year. That's a marked slowdown from February's 2.7% increase and January's 3% increase. Despite the slowdown, The Senior Citizens League increased its estimate for the 2026 COLA to 2.3%. That's still less than the 2025 COLA of 2.5% and a significant slowdown from 2021 through 2024. Many seniors may find it's not enough for their budgets. March showed very little impact from President Trump's tariff policies. As a result, The Senior Citizens League estimate doesn't include the potential changes to the COLA that could stem from higher prices on imported goods. While the government paused most of the massive tariffs it planned to impose on countries with large trade surpluses to the United States, it's maintained a 10% tariff on all imports, 25% on auto parts, and 25% tariffs on Mexico and Canada. Tariffs against Chinese imports haven't received any reprieve and sit at 145%, as of this writing. These tariffs could impact the price of just about everything American's consume. From cars to groceries to clothing to prescription drugs, the United States relies heavily on cross-border trade. While some argue that tariffs will provide relative strength to the dollar, which would offset the tariffs, most economists expect the new taxes to increase inflation. It's worth noting the U.S. Dollar index has fallen to a three-year low following the tariff announcement. The impact of the tariffs won't be felt right away, but it seems likely it'll hit consumer's wallets by summer. That's exactly when the CPI numbers start counting for next year's cost-of-living adjustment. That could mean a higher COLA for seniors, but it would come at a significant cost. Remember, there's a significant lag time between the CPI reading and the COLA going into effect -- up to six months. That means seniors could be struggling to keep up with tariff-induced inflation while hoping for a COLA big enough to help them catch up in 2026. Seniors should prefer slow and steady inflation, which allows the COLA to accurately reflect the increase in their costs. Unfortunately, that's an unlikely scenario with tariffs in place. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. This Estimate of Social Security's 2026 Cost-of-Living Adjustment (COLA) Was Just Revised. Here's How Tariffs Could Impact Your Benefits. was originally published by The Motley Fool
Yahoo
20-03-2025
- Business
- Yahoo
Social Security COLA set to fall again as seniors feel the pinch
The cost-of-living adjustment for Social Security benefits is expected to drop in 2026, intensifying the financial burden on seniors who say that Social Security adjustments are already inadequate. Annual cost-of-living adjustments, known as COLAs, can make or break budgets for many seniors who rely on Social Security benefits. In 2025, beneficiaries saw their benefits increase 2.5% to adjust for inflation — a roughly $50 increase in monthly benefits on average. As inflation cools, the agency is projected to issue a lower cost-of-living adjustment of 2.2% for 2026, according to new estimates from The Senior Citizens League, a nonprofit senior group. Over the past 50 years, Social Security benefits have been adjusted annually in relation to CPI-W, a measure of inflation that looks at a basket of expenses for urban wage earners and clerical workers. Although Social Security is tied to a direct measure of inflation, financial advisors say that seniors still feel their benefits lag behind the economic reality. READ MORE: As life expectancy rises, retirement strategies lag "For those that are in their retirement ages, the COLA does not represent the true cost of many staples that seniors need to live on including food, gas, rent, insurance and energy," said John Bell, founder of Free State Financial Planning in Highland, Maryland. "Those are non-negotiable costs that have gone up dramatically over the last five years and are not reflected accurately in the CPI-W." One non-negotiable cost many advisors point to is Medicare Part B premiums. According to the Centers for Medicare & Medicaid Services, Part B premiums increased at more than twice the rate of Social Security's COLA in 2025, with premiums up 5.9%. Because Part B premiums are commonly deducted from Social Security checks, that discrepancy can lead to beneficiaries seeing smaller monthly checks even after cost-of-living increases. Rising premiums aren't limited to Medicare. Noah Damsky, founder of Marina Wealth Advisors in Los Angeles, said that one of his clients was "furious" to see their home insurance premium increasing by 20%. READ MORE: The tax advantages of charitable remainder trusts — and the risks "COLA adjustments are completely out of touch," Damsky said. "We see costs increasing by far more than a few percent per year. With local minimum wage jumping to $20 per hour, insurance costs skyrocketing, stubborn gas prices, housing prices and mortgage-related [expenses] remaining elevated, costs are rising much faster than SSI [Supplemental Security Income] COLA adjustments." Advisors and advocates say that moving to a different inflation measure, like CPI-E, could help COLA keep up with reality. CPI-E, an inflation measure intended to more closely track the expenses of older people, saw a 3% year-over-year increase in 2025. If inflation were tied to CPI-E instead of CPI-W, this year's COLA would be 0.5% higher than it was. From one year to the next, CPI-E doesn't always exceed the current inflation measure for COLA — it lagged behind CPI-W for seven of the last 25 years — but advocates say it would boost benefits over the long term. Since 1999, CPI-E has increased 93%, whereas the CPI-W saw an 88% increase. For retirees, that would have resulted in roughly 5% bigger monthly benefits. "CPI-E … may be a better tool, but it would require a change in legislation and increased costs to Social Security over time," said Charles Kyle Harper, founder of Harper Financial Planning in West Columbia, South Carolina. "That could prove difficult to enact." Last year, then-Sen. Bob Casey, a Democrat from Pennsylvania, introduced legislation that would direct the Social Security Administration to begin using CPI-E as the basis for future cost-of-living adjustments. The bill, co-sponsored by Sens. Richard Blumenthal, Peter Welch, John Fetterman, Kirsten Gillibrand and Bernie Sanders, failed to advance during the last congressional session and has not been reintroduced by any current senator. READ MORE: 5 steps to help retirees affected by new Social Security clawbacks Even if the Social Security Administration were to begin using CPI-E for future adjustments, advisors say that seniors could continue feeling squeezed by the annual COLA, which inherently lags behind current inflation. "COLAs are based on past inflation data and only adjust once a year, while prices — especially for things like food, housing and medical care — can fluctuate more frequently," said Daniel Milks, co-founder and operations officer of Woodmark Wealth Management in Greenville, South Carolina. "By the time an increase kicks in, retirees may have already felt months of higher costs, leading to the perception that Social Security isn't keeping up." Advisors say they work with their clients to ensure Social Security is just one part of a broader retirement income strategy. But for retirees who rely on benefits as their main source of income, advisors say it can be difficult to work around the fact that Social Security continually trails the day-to-day economic reality. "I don't think there is any way to help address this with seniors that is factual," Bell said. "The seniors are living the reality and advisors can help them budget better, invest better in inflationary environments and hopefully counsel them through this tough time. But the reality is that the COLA adjustments are not representative of real inflation." Sign in to access your portfolio
