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SOCIAL SECURITY

What is the Cost of Living Adjustment (COLA) and how does it affect retirement benefits?

The SSA uses inflation data to increase benefits for Americans in an attempt to keep them one step ahead of inflation.

Update:
The SSA uses inflation data to increase benefits for Americans in an attempt to keep them one step ahead of inflation.
Jesús Hellín Europa Press

The Cost of Living Adjustment (COLA) is the percentage amount the Social Security Adminsitration (SSA) adjusts each year to keep benefits up to speed with inflation. Were it to not exist, benefits claimants would be perennially behind the price of goods.

The change in COLA, if any, is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) which are published monthly by the US Bureau of Labor Statistics. This an official measure of the monthly price change of a basket of goods and services. The Social Security Administration uses the monthly average from the third quarter, July, August and September, of the last year a COLA was determined compared to the third quarter of the current year.

When is the COLA released?

The US Bureau of Labor Statistics will release the Consumer Price Index data for September 2022, the last month of the third quarter.

Last year, the Social Security Administration released the 2021 COLA on the same day as that in 2020, October 13. It could be expected the 2022 COLA could be known as soon as Thursday 13 October 2022. However, those who don’t wish to be waiting around for the announcement can get the news sent directly to them.

Those who use the My Social Security online service can sign up to receive a message regarding the change in COLA. To receive free notifications from the Social Security Administration, log into your account and under “Message Center Preferences” you can choose to receive an email or text with the latest information.

How does the COLA affect retirement benefits?

Pretty simply, the COLA increases the amount a Social Security recipient can receive. In 2022, the average monthly Social Security retirement benefit is $1,668, according to data provided by the Senior Citizens League (SCL). The group estimates that the 2023 COLA increase could be as high as 10.5 percent. At publication, the CPI-W inflation measurement has year-on-year inflation at around 9.8 percent.

A 10.5 percent increase would increase the average payout ot a beneficiary of an extra $175.10 per month.

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This huge increase would be unprecedented, despite the large increase between 2021 and 2022; the increase was 5.9 percent. This was the highest COLA increase in nearly 40 years, showcasing the scale of 2023′s projected increase.

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