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Congressional Research Service (CRS)

 

Social Security: Cost-of-Living Adjustments

Gary Sidor,  Information Research Specialist

October 29, 2014

http://fas.org/sgp/crs/misc/94-803.pdf

[full-text, 9 pages]

 

Summary

To compensate for the effects of inflation, Social Security recipients usually receive an annual

cost-of-living adjustment (COLA). Benefits will be increased by 1.7% in 2015, following an

increase of 1.5% in 2014.

 

Social Security COLAs are based on changes in the Consumer Price Index for Urban Wage

Earners and Clerical Workers (CPI-W), updated monthly by the Department of Labor’s Bureau of

Labor Statistics (BLS). The COLA equals the growth, if any, in the index from the highest third

calendar quarter average CPI-W recorded (most often, from the previous year) to the average

CPI-W for the third calendar quarter of the current year. The COLA becomes effective in

December of the current year and is payable in January of the following year. (Social Security

payments always reflect the benefits due for the preceding month.)

 

If there is no percentage increase in the CPI-W between the measuring periods, no COLA is

payable. No COLA was payable in January 2010 because the average CPI-W for the third quarter

of 2009 did not increase from the average CPI-W for the third quarter of 2008, and again in 2011

because the average CPI-W for the third quarter of 2010 remained below the average CPI-W for

the third quarter of 2008. When the average CPI-W for the third quarter of 2011 exceeded that for

2008, establishing a new benchmark, a COLA was payable in 2012. Because the average CPI-W

for the third quarters of 2012 and 2013 exceeded the average CPI-W for the third quarters of each

respective preceding year, 2014 will be the third consecutive year in which a COLA will be paid.

 

Because a COLA of 1.7% will be paid to Social Security beneficiaries in 2015, identical

percentage increases in Supplemental Security Income (SSI) and railroad retirement “tier 1”

benefits will be paid, and other changes in the Social Security program will be triggered.

Although COLAs under the federal Civil Service Retirement System (CSRS) and the federal

military retirement program are not triggered directly by the Social Security COLA, these

programs use the same measuring period and formula for computing their COLAs. As a result,

their recipients similarly will receive a 1.7% COLA in January 2015.

The Congressional Budget Office (CBO) and the trustees for the Social Security trust funds both

project annual COLAs beyond 2015.

This report is updated annually.

 

Contents

How the Social Security COLA Is Determined ............................................................................... 1

The January 2015 COLA ................................................................................................................. 1

Scenario In Which No COLA Is Payable ........................................................................................ 2

What Is Affected Besides Social Security Benefits? ....................................................................... 3

Tables

Table 1. Computation of the Social Security COLA, January 2015 ................................................ 1

Table 2. Average CPI-W for the Third Quarter, 2007-2014 ............................................................. 3

Table 3. History of Social Security Benefit Increases ..................................................................... 5

Contacts

Author Contact Information............................................................................................................. 6

 

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