Cost of Living Adjustment (COLA) is a benefit for Social Security recipients and Supplemental Security Income (SSI) beneficiaries that helps counteract the effects of inflation. COLA increases the amount of monthly payments to account for rising prices as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
What is the purpose of COLA?
The purpose of COLA is to ensure that the purchasing power of Social Security and SSI benefits is not eroded by inflation. Prices tend to go up over time, so COLA adjustments help make sure that benefits keep pace with the cost of basic necessities like food, clothing, and shelter.
How is the COLA amount determined?
Each year, the COLA amount is based on the percentage increase in the CPI-W from the third quarter of the prior year to the third quarter of the current year. For example, the COLA effective for 2023 benefits was based on the increase in the CPI-W from the third quarter of 2021 to the third quarter of 2022.
The Social Security Administration (SSA) calculates the percentage change in the CPI-W and if there is an increase, a COLA is triggered. By law, the COLA cannot be negative – benefits will not decrease from one year to the next.
What was the COLA for 2023?
The COLA for 2023 is 8.7%, the highest increase in over 40 years. This means Social Security and SSI benefits increased by 8.7% starting with the December 2022 benefits, which were payable in January 2023.
Here are the COLA increases over the past 10 years:
| Year | COLA Percentage |
|---|---|
| 2023 | 8.7% |
| 2022 | 5.9% |
| 2021 | 1.3% |
| 2020 | 1.6% |
| 2019 | 2.8% |
| 2018 | 2.0% |
| 2017 | 0.3% |
| 2016 | 0.0% |
| 2015 | 1.7% |
| 2014 | 1.5% |
Who is eligible for the COLA?
The COLA applies to all Social Security beneficiaries, including:
- Retirees who receive Social Security retirement benefits
- Disabled workers who receive Social Security Disability Insurance (SSDI)
- Survivors who receive Social Security survivor benefits
The COLA also applies to SSI recipients, including:
- Adults and children with disabilities
- Adults and children who are blind
- Adults aged 65 and older without disabilities
Are there any eligibility requirements?
To be eligible for the COLA, you must be entitled to Social Security or SSI benefits. As long as you receive a monthly benefit payment, you will get the COLA increase automatically starting with your December benefit.
There are no other requirements to get the COLA. You do not need to sign up or apply separately for the COLA.
When does the COLA go into effect?
The COLA goes into effect each December, raising benefits starting with the payment made in January of the following year. For example, the 2023 COLA first raised benefits in January 2023.
If you are wondering when you will see the increase, here is the COLA payment schedule:
- January – First month with COLA increase
- February – Second month with COLA increase
- March – Third month with COLA increase
- April – Fourth month with COLA increase
- May – Fifth month with COLA increase
- June – Sixth month with COLA increase
- July – Seventh month with COLA increase
- August – Eighth month with COLA increase
- September – Ninth month with COLA increase
- October – Tenth month with COLA increase
- November – Eleventh month with COLA increase
- December – Twelfth month with COLA increase
The COLA remains in effect for the full calendar year. A new COLA for the next year is announced in October and takes effect starting in January.
Are COLAs automatic?
Yes, COLAs are automatic for anyone receiving Social Security or SSI benefits. You do not need to sign up or apply separately.
As long as you are entitled to benefits, the SSA will automatically determine the COLA amount each year and increase your monthly payments.
Will I be notified about the COLA?
Yes, the SSA sends letters each December to all beneficiaries to notify them of their new benefit amount for the upcoming year. The letter includes details about the percentage of the COLA and the exact net increase after any deductions.
For example, if your current Social Security benefit is $1,500 per month, with an 8.7% COLA your new benefit amount starting in January would be about $1,630 per month. The SSA letter provides the exact figure.
Do COLAs increase automatically every year?
No, it is possible that there is no COLA in a given year if inflation is very low or negative. By law, benefits cannot decrease from one year to the next.
Over the past 10 years, there were three years with no COLA:
- 2010
- 2011
- 2016
When there is no COLA, benefits simply remain unchanged at the previous year’s level.
Is the COLA amount the same for all recipients?
Yes, the COLA percentage is the same for all Social Security and SSI recipients. Everyone receives the same percentage increase.
For example, an 8.7% COLA in 2023 was applied equally to all beneficiaries. Higher benefit amounts receive a larger net increase in dollars, but the percentage remains the same.
Are COLAs meant to fully keep pace with inflation?
Not necessarily. COLAs are intended to partially offset the effects of inflation but they do not always increase benefits enough to maintain full purchasing power.
Some years the COLA is above inflation, while other years it lags behind. On average, benefits have lost nearly one-third of their purchasing power since 2000 due to inadequate COLAs.
What if inflation rises during the year?
The COLA for each year is set based on inflation from July-September of the previous year. If inflation rises significantly during the current year, the COLA for next year will account for that increase.
COLAs cannot be adjusted mid-year if inflation exceeds projections. Beneficiaries must wait for the next January’s COLA to see an increase.
Can the COLA be increased above the CPI formula?
In some cases, Congress can pass special legislation to increase the COLA above the amount determined by the CPI formula. However, laws increasing benefits above the CPI have been very rare historically.
Advocates argue that the CPI does not accurately reflect seniors’ higher health care costs, so a higher COLA is needed. But any ad hoc increase beyond the CPI would require an act of Congress.
How is the COLA calculated for couples or dual beneficiaries?
For beneficiaries who receive more than one monthly benefit, like a married couple each getting retirement benefits, the COLA is applied separately to each individual benefit amount.
For example, if a couple receives $1,500 for one spouse and $800 for the other, each benefit would increase by 8.7% for the 2023 COLA.
Is COLA determined differently for veterans?
No, veterans who receive Social Security benefits get the same COLA increase as all other Social Security beneficiaries. Any veteran disability compensation from the Department of Veterans Affairs is increased according to a different formula.
Where can I find my new benefit amount after the COLA?
The SSA will mail you a letter in December showing your new benefit amount for January. You can also create a my Social Security account online to view your COLA notice electronically.
In early January, your first increased payment will reflect the new COLA amount (after any deductions). Check your payment details online or contact the SSA if you have any questions.
Can benefit increases ever be higher than the COLA?
Yes, some beneficiaries may see a larger increase than just the COLA, if they have a situation that results in a recomputation of their benefit amount.
For example, if you continue working while collecting Social Security, your benefit may be recalculated and increased based on your additional earnings. This increase could exceed the standard COLA.
Is COLA applicable outside the U.S.?
The U.S. COLA applies only to Social Security and SSI payments made to beneficiaries living in the United States.
Beneficiaries living abroad may receive increases to benefits through cost of living adjustments or other mechanisms specific to each country.
The rules vary significantly depending on the country, so beneficiaries living overseas would need to check with the SSA regarding how benefits are adjusted.
Conclusion
The cost-of-living adjustment helps seniors and other Social Security beneficiaries keep up with rising prices. The COLA amount is based on annual increases in the Consumer Price Index and triggers automatic increases to monthly payments. All Social Security and SSI recipients get the COLA each January, without needing to take any action. Understanding the COLA formula and schedule can help beneficiaries plan their finances and ensure they receive this important benefit enhancement.