For better or worse, Social Security is arguably the most important social program in this country.
Each and every month, the Social Security Administration (SSA) provides a benefit to more than 62 million people, which includes nearly 43 million retired workers. Of these almost 43 million retirees, more than 3 out of 5 lean on their monthly checks to provide at least half of their monthly incomes. In effect, Social Security has played a key role in keeping elderly poverty rates down.
The importance of cost-of-living adjustments
Given how extensively retirees lean on Social Security to make ends meet, there's potentially nothing more important to current recipients than the annual cost-of-living adjustment (COLA) announcement in mid-October.
COLA is nothing more than the "raise" that beneficiaries will receive in the upcoming year. It's supposed to be representative of the inflation that Social Security beneficiaries face, but this isn't always the case. In fact, Social Security's inflationary tether that determines COLA is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
As the name implies, it measures the spending habits of urban wage earners and clerical workers, which differ greatly from seniors, who spend far more on medical care and housing as a percentage of total expenditures than working-age Americans. This often results in seniors receiving a COLA that doesn't adequately represent the inflation that they're facing.