Social Security COLA Calculation Method

What happened: Social Security benefits have lost nearly 14% of their buying power over the past decade. This is largely due to the current cost-of-living adjustment (COLA) calculation method, which is based on workers' spending habits, not retirees'. A separate inflation index, the CPI-E, which tracks senior spending, could better reflect retirees' expenses but has not been adopted.

Market impact: This narrative affects millions of Social Security beneficiaries, who rely on these benefits for a significant portion of their income. A change in the COLA formula could increase their benefits, impacting their spending power and potentially boosting consumer demand for certain goods and services.

What to watch next: The upcoming COLA announcement, typically in October, will reveal the 2023 benefit increase. Additionally, any legislative proposals to change the COLA formula will indicate if lawmakers are considering a shift to the CPI-E or another alternative.