Social Security: Cost-of-Living Adjustments

"To compensate for the effects of inflation, Social Security recipients usually receive an annual cost-of-living adjustment (COLA). Benefits will be increased by 1.7% in 2015, following an increase of 1.5% in 2014. Social Security COLAs are based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), updated monthly by the Department of Labor’s Bureau of Labor Statistics (BLS). The COLA equals the growt h, if any, in the index from the highest third calendar quarter average CPI-W recorded (most often, from the previous year) to the average CPI-W for the third calendar quarter of the current year. The COLA becomes effective in December of the current year and is payable in January of the following year. (Social Security payments always reflect the benefits due for the preceding month.)..."

Social security

Social Security: Cost-of-Living Adjustments

"To compensate for the effects of inflation, Social Security recipients received cost-of-living adjustments (COLAs) through the legislative process sporadically from 1950 to 1974, and automatically through a trigger mechanism in all but two years from 1975 to 2012. No adjustment was made in 2010 and 2011. Benefits will be increased by 1.7% in 2013, after an increase of 3.6% in 2012. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), updated monthly by the Department of Labor’s Bureau of Labor Statistics (BLS), is the measure that can trigger a change. The Social Security COLA is based on the percentage change in the index from the highest third calendar quarter average CPI-W recorded (most often, from the previous year) to the average CPI-W for the third calendar quarter of the current year. The COLA
becomes effective in December of the current year and is payable in January of the following year..."
Social Security: Cost-of_Living Adjustments

Current Price Topics: The Use of the CPI in Social Security Cost-of-Living Adjustments (COLAs)
"More than 50 million people currently receive Social Security benefits.[1] In 1972, Congress passed legislation tying Social Security cost-of-living adjustments (COLAs) to changes in the Consumer Price Index. Specifically, these COLAs are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), All Items, from the third quarter of one year to the third quarter of the next year.

COLA effective for 2009. The third quarter average 2007 CPI-W, All Items index stood at 203.596. The CPI-W average for the third quarter of 2008 was 215.495, an increase of 5.8 percent. (See table 1.) This 5.8-percent cost-of-living increase, which became effective in 2009, was the highest COLA in more than 25 years. The steep rise was due to both sharply higher gasoline prices, which climbed 35.2 percent from the third quarter of 2007 to the third quarter of 2008, and higher prices for food, which increased 6.2 percent over the same period.

COLA effective for 2010. From the third quarter of 2008 to the third quarter of 2009, the CPI-W actually fell 2.1 percent, due in large part to gasoline prices, which dropped 32.5 percent over that period. This was the first time the CPI-W, All Items index had fallen since Social Security COLAs were tied to the CPI. When the CPI-W falls, Social Security benefits do not fall. Instead, they remain unchanged.[2] For this reason, there was no COLA for 2010.

COLA effective for 2011. In the third quarter of 2010, the CPI-W stood at 214.136. Although this was higher than the 2009 third-quarter CPI-W average of 211.001, Social Security recipients will not receive a COLA in 2011. This is because, by legislation, the CPI-W must exceed its previous third-quarter peak, recorded in 2008, in order for there to be a positive COLA the next year. Put another way, because the third-quarter 2010 CPI-W level of 214.136 did not exceed its previous peak of 215.495 in 2008, there will be no automatic COLA in 2011..."