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Tuesday, October 26, 2010

Social Security: Cost-of-Living Adjustments

Gary Sidor
Information Research Specialist

To compensate for the effects of inflation, Social Security recipients received cost-of-living adjustments (COLAs) sporadically through the legislative process from 1950 to 1974, and automatically through a trigger mechanism in each year from 1975 to 2009. No adjustment was made in 2010, and one will not be made in 2011. 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), is the measure that can trigger a change. The Social Security COLA is based on the percentage change in the index from the highest third calendar quarter average CPIW 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. No COLA will be payable in January 2011 because the average CPI-W for the third quarter of 2010 has still not exceeded the average for the third quarter of 2008.

Because no COLA will be paid to Social Security beneficiaries in 2010, identical percentage increases in Supplemental Security Income (SSI), veterans’ pensions, and railroad retirement benefits, and additional changes in the Social Security program, will not be triggered. Although COLAs under the federal Civil Service Retirement System (CSRS) and the federal military retirement program are not triggered 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 not receive a COLA, for the second consecutive year, in January 2011.

Current law retains the average CPI-W for the third quarter of 2008, the reigning highest third quarter average, as the baseline for comparison for a COLA in 2012. The Congressional Budget Office (CBO) and the trustees of the Social Security trust funds have projected that there will be a small increase in the average CPI-W for the third quarter of 2011 relative to the average CPI-W for the third quarter of 2008, which would result in a COLA for 2012.

Date of Report: October 19, 2010
Number of Pages: 8
Order Number: 94-803
Price: $19.95

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