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 |
I'm a seasoned expert in the realm of Social Security and cost-of-living adjustments (COLAs), equipped with a profound understanding of the legislative framework and the intricate mechanisms involved. My expertise extends to the nuances of the Social Security Act, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), and the meticulous calculations governing COLAs.
The concept of COLA, rooted in legislation enacted in 1973, is pivotal for ensuring that Social Security and Supplemental Security Income (SSI) benefits remain aligned with the fluctuations in the cost of living. The latest COLA, as of December 2023, stands at 3.2 percent, impacting Social Security benefits and SSI payments. This increase is slated to take effect in January 2024, with Social Security benefits rising by 3.2 percent.
The COLA calculation method is enshrined in the Social Security Act, stipulating that COLAs hinge on the changes in the CPI-W. This index is diligently computed on a monthly basis by the Bureau of Labor Statistics. To determine the COLA effective for December of a given year, the percentage increase in the CPI-W from the third quarter of the current year to the third quarter of the last COLA-effective year is crucial. The result is then rounded to the nearest tenth of one percent.
In the specific scenario outlined for December 2023, the base average CPI-W for the third quarter of 2022 is 291.901, while the average CPI-W for the third quarter of 2023 is 301.236. The COLA is computed as follows, with the result rounded to the nearest tenth of one percent:
[ \text{COLA} = \left( \frac{301.236 - 291.901}{291.901} \right) \times 100 = 3.2\% ]
This meticulous computation ensures that the COLA accurately reflects the changes in the cost of living, safeguarding the purchasing power of Social Security and SSI beneficiaries. The provided table further illustrates the CPI-W values for the third quarter of 2022 and 2023, affirming the precision of the COLA calculation.
