retirement

What Is the Social Security COLA

Social Security benefits get a yearly boost to keep up with the cost of living — except when they don’t.

May 15, 2020

The Social Security Administration (SSA) is required by law to prevent inflation from eroding the buying power of the benefits paid out to nearly 69 million Americans. It uses a Social Security COLA formula based on the consumer price index to adjust payouts every January. Since prices typically rise, payouts typically rise also. If prices fall, payouts stay unchanged until prices catch back up again. A flat COLA is what Kiplinger is currently forecasting for 2020.

50 Best Places to Retire in the U.S.

How Is the 2021 Social Security COLA Calculated?

Specifically, SSA ties its adjustment for Social Security benefits to the wage earners’ consumer price index, which is similar to, but not exactly the same as, the more commonly reported urban dwellers’ consumer price index. National average prices are used, not regional. SSA also calculates the percent change between average prices in the third quarter of the current year with the third quarter of the previous year. The reason the fourth quarter isn’t used is because that number is typically not available from the U.S. Bureau of Labor Statistics until mid-January, and the SSA has to make its adjustment on January 1.