Cost-of-Living Adjustment (COLA)

What Is a Cost-of-Living Adjustment (COLA)?

A cost-of-living adjustment (COLA) is an increase made to Social Security and Supplemental Security Income (SSI) to balance the effects of rising prices in the economy — called inflation.

COLAs are ordinarily equivalent to the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for a specific period. The Consumer Price Index (CPI) addresses the average prices of a basket of goods and is utilized to measure inflation.

The COLA for 2022 is 5.9%, importance for somebody who received $10,000 in Social Security benefits in 2021, their 2022 annual benefit would total $10,590.

Figuring out Cost-of-Living Adjustment (COLA)

Since inflation was high during the 1970s, pay related contracts, real estate contracts, and government benefits utilized COLAs to safeguard against inflation. The U.S. Bureau of Labor Statistics (BLS) decides the CPI-W, which the Social Security Administration (SSA) utilizations to register COLAs. The COLA not set in stone by applying the percentage increase in the CPI-W from the second from last quarter of one year to the second from last quarter of the following year. This data is refreshed consistently on the SSA website.

Congress sanctioned a COLA provision to offer automatic yearly COLAs in light of the annual increase in the CPI-W that went into effect in 1975. Before 1975, Social Security benefits were increased when Congress approved special legislation. In 1975, COLAs depended on the increase in the CPI-W from the second quarter of 1974 to the principal quarter of 1975. From 1976 to 1983, COLAs depended on the increases in the CPI-W from the principal quarter of the previous year to the primary quarter of the current year. Beginning around 1983, COLAs have been dependent on the CPI-W from the second from last quarter of the previous year to the second from last quarter of the current year.

COLAs rely upon the CPI-W from the second from last quarter of the previous year to the second from last quarter of the current year.

Inflation levels went from 3.3% to 11.3% during the 1970s. In 1975, the COLA increase was 8%, and the inflation rate was 9.1%. In 1980, the COLA arrived at the highest level in history at 14.3%, while the inflation rate was 13.5%. During the 1990s, definitely lower inflation rates incited small COLA increases averaging 2% to 3% each year. That went on into the mid 2000s, when even lower inflation rates brought about no COLA increases in 2010, 2011, and 2016. The COLA for 2022 is 5.9%, up from 1.3% in 2021.

Special Considerations

COLA is dependent on two parts: the CPI-W and the employer-contracted COLA percentage. CPI decides the rate of inflation and is compared yearly. When consumer prices drop — or on the other hand in the event that inflation has not been sufficiently high to prove a COLA increase — beneficiaries don't receive a COLA. In the event that there is no CPI-W increase, there is no COLA increase.

When a COLA increase isn't approved, Medicare Part B premiums continue as before for roughly 70% of beneficiaries who get the premiums deducted from their Social Security checks. However, the leftover beneficiaries — those with higher incomes, the people who didn't participate in that frame of mind through their employer, and new beneficiaries — should pay the Medicare Part B premium increases.

The standard month to month Medicare Part B premium set for 2021 is $148.50, however the premium ascents to $170.10 in 2022 — an increase of $21.60 from 2021.

Different Types of COLAs

A few employers, like the U.S. military, sometimes give a brief COLA to employees who are required to perform work assignments in urban communities with a higher cost of living than their home city. This COLA terminates when the work assignment is done.

Highlights

• The COLA for 2022 is 5.9%.
• A cost-of-living adjustment (COLA) is an increase in Social Security benefits to check inflation.
• Automatic yearly COLAs started in 1975.
• Inflation is measured utilizing the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).