Essential Information About Cost-of-Living Adjustments for Senior Social Security Benefits: A Comprehensive Guide for Retirees
The Social Security Administration (SSA) annually calculates the Cost-of-Living Adjustment (COLA) for Social Security beneficiaries based on inflation data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This adjustment aims to protect the purchasing power of Social Security benefits over time.
The SSA compares the average CPI-W of the third quarter (July, August, and September) of the current year to that of the third quarter of the last year when a COLA was granted. The year-over-year percentage change is calculated and rounded to the nearest tenth of a percent. If there is an increase, a COLA is granted reflecting that inflation rate; if there is no measurable increase, no COLA is issued.
For instance, in 2010, 2011, and 2016, there was no COLA due to no increase in the CPI-W compared to the previous year’s third-quarter average. The SSA waits for the full third-quarter CPI-W data before officially announcing the COLA, typically in October.
It is essential to understand the ins and outs of COLAs, especially for those who rely on Social Security benefits. Social Security benefits do not necessarily receive a COLA every year if there is no annual increase in the CPI-W. Social Security recipients are eligible for cost-of-living adjustments (COLAs) to keep their benefits in line with inflation, but there is no such thing as a negative COLA.
Keeping track of inflation during the year, especially in the third quarter, can help one anticipate the upcoming COLA announcement. When there is no COLA, Social Security benefits remain flat and do not decrease.
In 1975, the rule changed so that COLAs became automatic, no longer requiring a vote from lawmakers to increase benefits from one year to the next. Social Security COLAs are not guaranteed to raise benefits every year, but they provide a crucial safeguard for millions of Americans who rely on Social Security for their financial security.
References:
[1] "Social Security's Cost-of-Living Adjustment (COLA): How It Works." AARP. https://www.aarp.org/retirement/social-security/info-2018/social-security-colas-explained.html
[2] "Social Security COLA: How It's Calculated." Investopedia. https://www.investopedia.com/terms/s/ssa_cola.asp
[3] "Social Security COLA: What It Means for Retirees." Kiplinger. https://www.kiplinger.com/retirement/social-security/T054-C002-s001-what-is-a-social-security-cola.html
[4] "Social Security COLA: What It Means for Beneficiaries." Forbes. https://www.forbes.com/sites/ashleaebeling/2020/10/13/social-security-cola-what-it-means-for-beneficiaries/?sh=698c46fc5e6a
[5] "Social Security COLA: What Is It and Why Does It Matter?" The Balance. https://www.thebalance.com/what-is-social-security-cola-3196193
In the realm of personal-finance, understanding the Cost-of-Living Adjustment (COLA) is crucial for individuals relying on Social Security benefits. Social Security COLAs are not guaranteed every year, but they help maintain the purchasing power of benefits over time to counteract inflation, shielding millions of Americans from financial strain during retirement.
