What is the Cost of Living Adjustment (COLA) and how does it affect pension benefits?
The Cost of Living Adjustment (COLA) is the percentage that the Social Security Administration (SSA) adjusts each year to keep benefits in line with inflation. If it did not exist, the recipients would be perpetually behind on the price of goods.
The change of COLA, if applicable, is calculated using the consumer price index for urban wage and office workers (CPI-W) which are published monthly by the United States Bureau of Labor Statistics. It is an official measure of the monthly price change of a basket of goods and services. Social Security Administration uses the monthly average for the third quarter, July, August and September of last year, a COLA was determined relative to the third quarter of the current year.
When was the COLA released?
The US Bureau of Labor Statistics will release Consumer Price Index data for September 2022, the last month of the third quarter.
Last year, the Social Security Administration released the 2021 COLA on the same day as 2020, October 13. One would expect the COLA 2022 to be known as early as Thursday, October 13, 2022. However, those who do not wish to wait for the announcement can receive the news directly.
Those using the My Social Security online service can sign up to receive a message about the COLA change. To receive free notifications from the Social Security Administration, log in to your account and under “Message Center Preferences” you can choose to receive an email or text message with the latest information.
How does COLA affect retirement benefits?
Quite simply, the COLA increases the amount a Social Security beneficiary can receive. In 2022, the Monthly average The Social Security retirement benefit is $1,668, according to data provided by the Senior League (SCL). The group estimates that the COLA increase in 2023 could reach 10.5%. At press time, the CPI-W inflation measure has year-over-year inflation of around 9.8%.
A 10.5% increase would increase a beneficiary’s average payout by one $175.10 more per month.
This huge increase would be unprecedented, despite the large increase between 2021 and 2022; the increase was 5.9 percent. This is the largest increase in COLA in nearly 40 years, showing the magnitude of the increase projected for 2023.