The short answer is yes: Social Security benefits are adjusted upward for the effects of inflation. This Social Security cost-of-living increase is officially known as the 澳洲幸运5官方开奖结果体彩网:cost-of-living adjustment (COLA)🌠. Each year, the Social Security Administration (SSA) decides whether the following year’s benefit will include a COLA 🐻and, if so, how large it should be. Contribution levels to the program are also linked to inflation.

The longer answer is more complicated: Some expenses, particularly those fಌacing retired people, are not always reflected in inflation data. If those costs increase faster than the COLA, elderly individuals ꦦmay suffer a net loss of buying power. Social Security benefits were not always adjusted for inflation—that started in the 1970s. Let’s take a look at what prompted the SSA to implement the COLA and how it is determined.

Social Security COLA History

For the Social Security program’s initial four decades, benefit amounts did not increase automatically based on higher living costs. They only changed sporadically, when Congress approved a hike through legislation.

However, in the 1970s, the cost of living started skyrocketing for many Americans. The removal of the dollar from the 澳洲幸运5官方开奖结果体彩网:gold standard, rising oil prices, supply shocks, and other factors 澳洲幸运5官方开奖结果体彩网:triggered unprecedented inflation that would plague the U.S. throughout the decade.

Though workers received some relief from rising prices because their wages also climbed, people on fixed incomes struggled badly, particularly the𒆙 elderly. Having Social Security adjusted for or indexed to inflation was necessary to ensure that beneficiaries with no other sources of income could still pay their bills.

All this prompted Congress to modify the Social Security program so that inflation would trigger increases in benefit amounts. Congress enacted the Social Security COLA in 1972, but it didn’t take effect until 1975.

How the COLA Is Determined

Social Security recipients do not automatically receive a COLA💮 i🍌ncrease every year.

The COLA is based on the Co🦂nsumer Price Index for Urban Wage Earners🧸 and Clerical Workers (CPI-W), as calculated by the 澳洲幸运5官方开奖结果体彩网:Bureau of Labor Statistics (BLS), part of the U.S. Department of Labor. The CPI-W measures what workers with modest incomes pay, on average, for retailꦡ goods.

When the CPI-W increases by more than 0.1% between the third quarter of the previous year and the third quarter of the current year, the Social Security Administration adds a COLA to Social Security benefits. Benefits increase by the same amount as the index. During years when the CPI-W increase is nominal or negative, 澳💧洲幸运5官方开奖结果体彩网:Social Security recipien🎶ts receive no COLA.

The Social Security Administration typically announces the COLA in October for changes that will take effect the following year.

The 8.7% increase for 2023 was the highest in over 40 years. Other significant increases occurred in 2008 (5.8% for 2009) and 1990 (5.4% for 1991). There was no increase in 2015. Notably, the COLA reached a record high of 14.3% in 1980, when the inflation rate was 13.5%.

COLA vs. Actual Cost Increases

Although the Social Security Administration may provide a COLA, this increase is based on the average prices of a basket of consumer goods that may not reflect the actual expenses of Social Security recipients.

A study by the Center for Retirement Research found that retirees lose buying power in two ways, even with a COLA. First, Medicare Part B premiums tend to rise faster than inflation, resulting in a net loss of buying power. Second, the threshold for taxing Social Security benefits is not adjusted for inflation, meaning that a high COLA may increase one's tax burden.

A study by the Senior Citizens League, which advocates for retired people, claims that between January 2000 and February 2023 "COLAs increased benefits by 78%." The study goes on to state that the cost of goods and services bought by typical retirees in the same period increased by 141.4% and that Social Security benefits have lost 36% of buying power since 2000."

The Bottom Line

🔜The Social Security Administration ensures that Social Security benefits keep up with inflation through COLA adjustments. The adjustments are calculated based on inflation levels and vary every year, though not all years witness a COLA adjustment.