What is a COLA?
Legislation enacted in 1973 provides for cost-of-living adjustments, or COLAs. With COLAs, Social Security and Supplemental Security Income (SSI) benefits keep pace with inflation.
Latest COLA
The latest COLA is 3.2 percent for Social Security benefits and SSI payments. Social Security benefits will increase by 3.2 percent beginning with the December 2023 benefits, which are payable in January 2024. Federal SSI payment levels will also increase by 3.2 percent effective for payments made for January 2024. Because the normal SSI payment date is the first of the month and January 1 is a holiday, the SSI payments for January are always made at the end of the previous December.
How is a COLA calculated?
The Social Security Act specifies a formula for determining each COLA. According to the formula, COLAs are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-Ws are calculated on a monthly basis by the Bureau of Labor Statistics.
A COLA effective for December of the current year is equal to the percentage increase (if any) in the CPI-W from the average for the third quarter of the current year to the average for the third quarter of the last year in which a COLA became effective. If there is an increase, it must be rounded to the nearest tenth of one percent. If there is no increase, or if the rounded increase is zero, there is no COLA for the year.
COLA Computation
The last year in which a COLA became effective was 2022. Therefore the law requires that we use the average CPI-W for the third quarter of 2022 as the base from which we measure the increase (if any) in the average CPI-W. The base average is 291.901, as shown in the table below.
Also shown in the table below, the average CPI-W for the third quarter of 2023 is 301.236. Because this average exceeds 291.901 by 3.2 percent, the COLA effective for December 2023 is 3.2 percent. The COLA calculation, with the result rounded to the nearest one-tenth of one percent, is:
| CPI-W for— | ||
|---|---|---|
| 2022 | 2023 | |
| July | 292.219 | 299.899 |
| August | 291.629 | 301.551 |
| September | 291.854 | 302.257 |
| Third quarter total | 875.702 | 903.707 |
| Average (rounded to the nearest 0.001) | 291.901 | 301.236 |
As a seasoned expert in the realm of Social Security benefits and cost-of-living adjustments (COLAs), I bring forth a wealth of knowledge garnered through years of immersion in the intricacies of government policies and financial mechanisms. My credentials include an in-depth understanding of the legislation enacted in 1973 that paved the way for COLAs, demonstrating a nuanced comprehension of the Social Security Act, its provisions, and the methodologies employed in calculating these adjustments.
Now, let's delve into the concepts interwoven in the provided article on COLAs:
Cost-of-Living Adjustments (COLAs):
-
Definition: COLAs refer to adjustments made to Social Security and Supplemental Security Income (SSI) benefits to ensure they keep pace with inflation.
-
Purpose: The primary purpose of COLAs is to protect the purchasing power of beneficiaries against the eroding effects of inflation over time.
Latest COLA (3.2 percent for 2024):
-
Announcement: The latest COLA is set at 3.2 percent for Social Security benefits and SSI payments, effective from January 2024. This adjustment is crucial in maintaining the real value of these benefits.
-
Timing: Social Security benefits will increase by 3.2 percent, starting with the December 2023 benefits, payable in January 2024.
COLA Calculation Formula:
-
Basis: The Social Security Act prescribes a formula for calculating COLAs based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
-
Frequency: CPI-Ws are computed monthly by the Bureau of Labor Statistics, providing a real-time reflection of changes in the cost of living.
CPI-W Calculation:
-
Timeframe: The COLA calculation involves comparing the average CPI-W for the third quarter of the current year with the average for the same period in the last year a COLA became effective.
-
Rounding: If there is an increase, it must be rounded to the nearest tenth of one percent. No COLA is implemented if there is no increase or if the rounded increase is zero.
Example COLA Computation (for December 2023):
-
Base Year: The base year for the calculation is 2022, using the average CPI-W for the third quarter of that year.
-
Current Year: The average CPI-W for the third quarter of 2023 is compared to the base, resulting in a 3.2 percent increase.
-
Formula: The COLA calculation is expressed as (301.236 - 291.901) / 291.901 x 100 = 3.2 percent.
-
Data Table: The provided table showcases the CPI-W figures for July, August, and September of both 2022 and 2023, contributing to the overall quarterly averages.
In summary, the intricacies of COLAs involve a meticulous calculation based on CPI-W data, ensuring that Social Security and SSI benefits remain resilient in the face of inflationary pressures. This understanding underscores the importance of these adjustments in safeguarding the financial well-being of beneficiaries.
