The annual cost-of-living adjustment (COLA) for Social Security recipients in the U.S. is a critical policy that assures benefits match up with inflation. This change ensures beneficiaries sustain their purchasing power, despite the rise in costs.
Social Security increases tied to the cost of living were instituted in 1975. Before this, Congressional interventions were needed to periodically raise Social Security benefits, considering the increasing living costs.
The 1975 change offered a consistent and systematic increase in Social Security benefits, providing a reliable financial safety net for beneficiaries. The benefits, as ensured by this measure, could keep up with inflation dynamics, improving the recipients’ purchasing power and financial security.
The history of Social Security benefits holds some significant changes such as when Congress approved a 77% benefits boost in 1950, the first increase since the program started in 1940. More changes followed with a substantial hike in 1952 and continuous adjustments afterwards to accommodate inflation and living costs.
Notably, in 1972, Congress made a game-changing move with a 20% benefits boost and the introduction of an automatic COLA to commence in 1975.
Adjusting Social Security benefits with inflation
From 1975 onwards, existing beneficiaries were purposed to receive an automatic COLA, tethered to the inflation rate. This established a system that tied Social Security benefits to the economy’s fluctuations.
The introduced framework attracted much attention as it substantially improved financial security for seniors, disabled people, and other Social Security beneficiaries. It introduced a progressive element to Social Security and helped to protect citizens from economic instability, significantly reducing poverty among seniors.
Since 1975, the Social Security Administration (SSA) has used the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to calculate yearly COLAs. There were some exceptions with zero increase in COLA, specifically in 2009, 2010, and 2015, reflecting the economic conditions during these years.
The highest COLA recorded was at 14.3% in 1980 during a high inflation period. On average, the COLA from 1975 to 2023 is 3.8%. As for the forthcoming Social Security COLA, details remain undisclosed until October when September’s CPI-W data is made public. However, The Senior Citizens League estimates the next COLA to be approximately 2.6%, based on recent figures.
