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May 24, 2024
A Hypothetical Social Security Cost-of-Living Adjustment
Based on the Research Consumer Price Index for the Elderly
Background
reflecting the experiences of the elderly and that any
The Social Security Administration (SSA) administers
conclusion from analyses should be treated as tentative.
Social Security, a social insurance program that protects an
Because the R-CPI-E uses the same geographic areas, retail
insured worker and his or her eligible family members
outlets, items selected for pricing, and prices as the CPI-U,
against a loss of income due to the worker’s retirement,
the estimates from the R-CPI-E are likely to differ from a
disability, or death. People of all ages receive benefits from
price index constructed specifically to measure the
the program, with over 67 million beneficiaries in February
experience of Americans age 62 or older. Essentially, the
2024. Monthly Social Security payments for beneficiaries
R-CPI-E assumes that Americans 62 or older live and shop
are subject to an annual cost-of-living adjustment (COLA)
in the same places, buy the same things, and pay the same
to account for rising prices (inflation).
prices as other urban consumers reflected in the CPI-U,
though in different quantities.
The COLA is calculated automatically each year and is
intended to reflect the change in the cost of living over a
The underlying population used to calculate the R-CPI-E
one-year period. Automatic Social Security COLAs became
differs from the population of Social Security beneficiaries.
effective in 1975 after being established in 1972 as part of
Many Social Security beneficiaries are under the age of 62,
P.L. 92-336. The legislation referred only to the Consumer
such as surviving children and most disabled workers.
Price Index (CPI), which at the time was the only version of
Additionally, not all people over 62 are Social Security
consumer price index produced by the Department of
beneficiaries, including the substantial portion of persons
Labor’s Bureau of Labor Statistics (BLS) and pertained to
age 62 or older who have not yet claimed benefits.
urban wage earners and clerical workers. In 1978, BLS
revised the CPI, which was renamed as the CPI for Urban
Alternative COLA Using R-CPI-E
Wage Earners and Clerical Workers (CPI-W), and
Table 1 provides the calculation of the Social Security
introduced the CPI for All Urban Consumers (CPI-U).
COLA using both the CPI-W and the R-CPI-E. The
Although the CPI-U was used to escalate tax brackets
December 2023 COLA using the R-CPI-E (4.0%) would
beginning in 1985, most federal programs continued to use
have been 0.8 percentage points higher than the COLA
the CPI-W for indexing. Currently, the CPI-W covers
using the CPI-W (3.2%).
approximately 30 percent of the population—urban wage
earners and clerical workers—that by definition is
Table 1. Determination of Alternative Social Security
employed, unlike most Social Security beneficiaries.
Cost-of Living Adjustment (COLA), December 2023
Current Law Social Security Calculation
CPI-W Index
R-CPI-E Index
Under current law, the Social Security COLA equals the
Points
Points
percentage increase in the average CPI-W from the third
July 2022
292.219
320.337
quarter of the base year (the last year for which a COLA
was applied) to the third quarter of the current year. BLS
August 2022
291.629
320.720
generally releases the September CPI-W by mid-October,
September 2022
291.854
321.745
and SSA then computes and announces the COLA. The
COLA becomes effective in December of the current year
Average for 2022 Q3:
291.901
320.934
and is payable in January of the following year.
July 2023
299.899
332.545
A Consumer Price Index for the Elderly
August 2023
301.551
334.032
In response to concerns about how effectively the CPI-W
tracks the spending patterns of older consumers, in 1987
September 2023
302.257
335.069
Congress directed BLS to introduce an index for the elderly
Average for 2023 Q3:
301.236
333.882
(P.L. 110-175, §191). BLS developed an experimental
consumer price index for Americans 62 years of age and
% change between
3.20%
4.00%
older, commonly called the CPI-E and now designated as a
Q3 averages
research measure (R-CPI-E). BLS developed the R-CPI-E
Social Security
3.20%
4.00%
and constructed values for the series for 1982 and later.
COLA
Caveats to Using R-CPI-E
Source: CRS calculations using Department of Labor (DOL), Bureau
BLS cautions that the R-CPI-E is experimental and has
of Labor Statistics (BLS) data series for the Consumer Price Index for
methodological limitations that may impact its accuracy in
Urban Wage Earners and Clerical Workers (CPI-W) for 2022 and
https://crsreports.congress.gov
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A Hypothetical Social Security Cost-of-Living Adjustment Based on the Research Consumer Price Index for the Elderly
2023, https://www.bls.gov/cpi/data.htm; and DOL, BLS data series for
(DOL), Bureau of Labor Statistics (BLS) data series for the research
the Consumer Price Index for Americans 62 years of age and older
Consumer Price Index for Americans 62 (R-CPI-E).
(R-CPI-E) for 2022 and 2023, https://www.bls.gov/cpi/research-series/
Notes: The COLA for a given year applies to benefits payable
r-cpi-e-home.htm.
beginning in January of the following year (e.g., the 2023 COLA
applies to benefits payable beginning in January 2024). COLA is
Notes: The 2023 COLA applies to benefits payable beginning in
rounded to the nearest 0.1% or zero if negative.
January 2024. The reference base period for the CPI-W is 1982-1984
(i.e., the period when the index equaled 100). The reference base for
January 2024 Benefits Under an
the R-CPI-E is December 1982. Averages are rounded to the nearest
Alternative R-CPI-E COLA
one-thousandth of a point. COLA is rounded to the nearest 0.1% or
Social Security estimated that the average monthly Social
zero if negative.
Security benefit payable to all retired workers in January
2024 was $1,848 before the 3.2% current-law COLA and
Historically, the R-CPI-E has grown faster than the CPI-W
$1,907 after the 3.2% current-law COLA. Applying the
has because a larger portion of spending by the elderly goes
4.0% hypothetical COLA based on the R-CPI-E instead
toward health care expenditures and other items that are
would result in a $1,922 average retired worker benefit.
weighted more heavily in the R-CPI-E and whose prices
tended to rise more rapidly. As a result, switching to the R-
Examples of Legislation (118th Congress)
CPI-E is generally projected to result in larger COLAs and
Several proposals in the current Congress would replace the
higher Social Security benefits. A hypothetical COLA
CPI-W in the current COLA formula with the R-CPI-E or
based on the R-CPI-E would have equaled or exceeded the
require BLS to construct a formal CPI-E index. These
current law COLA in all but six years since 1986 (2005,
include H.R. 716, H.R. 1046, H.R. 1688, H.R. 3261, H.R.
2008, 2011, 2018, 2021, and 2022) as seen in Figure 1.
4583, H.R. 8044, S. 393, S. 2280, and S. 3974.
Over the period from January 1985 to January 2024, the
CPI-W increased about 188% and the R-CPI-E by 211%.
Resources
CRS Report 94-803, Social Security: Cost-of-Living
Figure 1. Current Law Social Security COLA (CPI-
Adjustments
W), Hypothetical Alternative COLA (R-CPI-E), and
Difference, 1986-2023
CRS Report R43363, Alternative Inflation Measures for the
Figure is interactive in the HTML version of this In Focus
Social Security Cost-of-Living Adjustment (COLA)
Social Security Fact Sheet: 2024 Social Security Changes,
https://www.ssa.gov/news/press/factsheets/
colafacts2024.pdf
U.S. Bureau of Labor Statistics Factsheet: “The Consumer
Price Index—Why the Published Averages Don’t Always
Match an Individual’s Inflation Experience”
Kenneth J. Stewart, “The Experimental Consumer Price
Index for Elderly Americans (CPI-E): 1982-2007,” Monthly
Labor Review, April 2008, pp. 19-24
T. Lynn Sears, Analyst in Social Policy
IF12675
Source: Social Security Administration (SSA), “Cost-Of-Living
Adjustments” and CRS calculations using Department of Labor
https://crsreports.congress.gov
A Hypothetical Social Security Cost-of-Living Adjustment Based on the Research Consumer Price Index for the Elderly
Disclaimer
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