What was the biggest annual Social Security cost of living COLA adjustment?
The cost-of-living adjustment announced for 2023 was historically big at 8.7%, but it pales in comparison to those at the end of the Great Inflation.
The United States, like many nations around the world, has been reeling from high inflation. The price of food, fuel and really just about everything has been rising at a pace not seen since the 1980s.
While households contend with increasing costs, those whose income gets adjusted every year automatically to keep up with inflation got some good news. The Social Security Administration released its 2023 cost-of-living adjustment (COLA). At 8.7 percent, it was historically big but not even close to one the year President Ronald Reagan got elected.
The biggest annual COLA on record
A president’s fortunes at the ballot box are usually tied to how the economy is doing. They get the credit when things are going well, and much of the blame when it sours. In reality they have very little control over the economy, which swings depending on global forces.
The biggest COLA on record came while Jimmy Carter was president, but the boost to Social Security benefits couldn’t help his electoral chances, with a myriad of problems beyond his control. When the COLA was announced that was to take effect for payments in July 1980, Social Security benefits got a whopping 14.3 percent boost. The average retire worker was estimated to get $338.12 per month, an extra $42.36 added to their monthly payment.
However, the high inflation that necessitated the massive increase, coupled with high unemployment, saw Reagan swept to power when Americans voted in 1980.
The year after was the second biggest COLA ever, followed by the 1979 adjustment. Once again the US is experiencing such levels of inflation, at first driven by covid-19 pandemic-induced disruption, now exacerbated by Russia’s war of aggression in Ukraine. This has led to the fourth highest COLA on record, which will take effect in 2023.
The economic situation is much different today than it was four decades ago, with unemployment reaching pre-pandemic lows. President Biden and Democrats will be hoping that voters will focus on the strong economy and not on rising prices.
At a glance - ten largest COLAs:
What caused the record COLA in 1980
Oil shocks have been pretty effective at throwing a wrench in the works of the economy time and again. In 1973, the Arab oil embargo quadrupled the price of crude, which remained high until the 1979 energy crisis brought on by the Iranian revolution.
The second shock tripled the price of crude oil. Other factors and a misguided policy by the Federal Reserve helped to accelerate rising prices at the tail end of the Great Inflation period, which ran from 1965 to 1982. Of the ten biggest COLA increases, seven of them occurred in the final years of the Great Inflation period. Besides the one for 2023, the only ones outside that period are 2021 and 2008, which come in at ninth and tenth place.