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What are cost of living adjustments?

| Jun 25, 2020 | Social Security Disability

Each year the Social Security Administration releases a cost of living adjustment. The COLA affects everyone receiving benefits from the SSA under any program. You will always receive information about the COLA each year that you receive benefits, but you may not exactly know what it is or how it works.

According to the SSA, the COLA helps to combat inflation from year to year. It comes from the Consumer Price Index.

Increases

The COLA only occurs if there is an increase. It will never decrease the benefits you receive. It is possible for there to be no COLA for a year. Prior to 1986, Congress had a limit on increases, and they did not happen unless the COLA was at 3%. This was because inflation was at an all-time high in the 1970s, but it began to reduce in the 1980s. That led to no COLAs occurring year after year, which made benefit payments stagnant while the actual cost of living really was going up. So, Congress dropped the rule, and now it will only apply when the increase is at least 0.1%.

Calculation

The COLA is a percentage, and to come up with it, the SSA looks at the average CPI for Urban Wage Earners and Clerical Workers. It compares the most recent third-quarter figure to the figure of the previous year. The difference is the COLA.

Implementation

Once the SSA has the COLA, it will increase your payments starting at the beginning of the new year. You will get a notification from the office prior to the increase that lets you know how much it will be and the exact date of the first increased payment.

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