Social Security Cost-of-Living Adjustments and the Consumer Price Index

Social Security - Old-Age, Survivors, and Disability Insurance (OASDI) - benefits are indexed for inflation to protect beneficiaries from the loss of purchasing power implied by inflation. In the absence of such indexing, the purchasing power of Social Security benefits would be eroded as rising prices raise the cost of living. Recently, the consumer price index used to calculate the cost-of-living-adjustment (COLA) for Social Security (OASDI) benefits has come under increased scrutiny. Some argue that the current index does not accurately reflect the inflation experienced by seniors and that COLAs should be larger. Others argue that the measure of inflation underlying the COLA has technical limitations that cause it to overestimate changes in the cost of living and that COLAs should be smaller. This article discusses some of the issues involved with indexing Social Security benefits for inflation and examines the ramifications of potential changes to COLA calculations