ghghghgh
With inflation back in the picture over the last two years, COLAs have become a more relevant topic.
What is a COLA, what does it mean to Social Security recipients, have COLAs kept pace with inflation, and are COLAs beneficial to recipients?
Let’s find out about COLAs! But, before a discussion of the benefits of COLAs is initiated, background information on the basic Social Security program is indicated.
ghghgh
What are the Minimum Social Security Benefits Provided?
ghhghgh
In the calendar year 2023, Social Security’s special minimum benefit will range from $49.40 per month to $1033.50 per month. A person who works for at least 11 years making a minimum income of $17,820 will be paid a minimum of $49.40 per month at full retirement age. For someone who works for at least 30 years, the minimum amount at full retirement age would be $1033.50 per month.
It’s interesting to note that most people receive regular Social Security benefits. According to the Social Security Administration, in 2022 only about 23,000 people took advantage of the special minimum Social Security benefits program.
hhghhg
What are the Maximum Social Security Benefits Provided?
jgfjjhjhjghj
In the calendar year, 2023:
The maximum benefit for someone who files at age 62 is $2,364.
The maximum benefit for someone who files at full retirement age (which varies between 66 years and four months for those born in 1956, and 66 years and six months for those born in 1957) is $3,345.
The maximum benefit for someone who files at age 70 is $4,194.
So, believe it, or not, in 2023 benefits can range from a minimum of $49.40 to a maximum of $4194.
The range of benefits available is amazing but is irrelevant to the discussion of COLA benefits.
jghvhhgb
What is the Social Security Act?
gjjghjghj
The Social Security Act was signed into law by President Roosevelt on August 14, 1935. The Social Security Act created the program called Social Security, which was designed to pay retired workers age 65 or older retirement income for life.
Taxes were collected for the first time on January 20, 1937, and the first payments (which were lump-sum) were made that same month. Regular monthly benefits started in January 1940. Originally, the Social Security Act of 1935, was named, the Economic Security Act, but was changed to the Social Security Act of 1935 during congressional consideration of the bill.
Many people complain, although falsely, that members of Congress, the president, and the vice president do not contribute to the Social Security system. All members of Congress have paid into the Social Security system since January 20, 1984. There are still some federal employees who were hired prior to January 1984 who do not participate in the social security system. All federal employees hired on or after January 1, 1984 are mandatorily covered under the Social Security Act.
The initial retirement age of 65 enacted in 1935 was based primarily on existing old-age pension systems and was confirmed by actuarial studies.
hghghg
When did COLAs Come into Existence?
fuufgj
Annual increases in Social Security benefits, used to offset the effects of inflation on fixed income are known as cost of living allowances (COLA). The United States Social Security Administration (SSA) makes this cost-of-living adjustment every year to ensure people receiving Social Security benefits can maintain their standard of living. Annual COLA is announced every third quarter of the year and usually matches the annual change in CPI-W (the consumer price index for urban wage earners and clerical workers.)
A 1950 amendment to the Social Security Act legislated the first increase in Social Security benefits. These increases appeared in the October 1950 checks. A second increase was legislated for September 1952. These two increases almost doubled the value of social security benefits for existing beneficiaries. After September 1952 benefits were increased only through special legislation of Congress for that specific purpose. In 1972, legislation was changed to provide an annual automatic cost of living allowances, (COLAs). First paid in 1975, as a result of the 1972 legislation, recipients now receive automatic annual increases in Social Security benefits.
Below is a chart of annual Social Security increases from 1950-2013:
| Social Security Benefit Increases 1950-2013 | |
|---|---|
| Effective Date | Percent Increase |
| 9/50 | 77.0 |
| 9/52 | 12.5 |
| 9/54 | 13.0 |
| 1/59 | 7.0 |
| 1/65 | 7.0 |
| 2/68 | 13.0 |
| 1/70 | 15.0 |
| 1/71 | 10.0 |
| 9/72 | 20.0 |
| 3/74* | 7.0* |
| 6/74 | 11.0 |
| 6/75 | 8.0 |
| 6/76 | 6.4 |
| 6/77 | 5.9 |
| 6/78 | 6.5 |
| 6/79 | 9.9 |
| 6/80 | 14.3 |
| 6/81 | 11.2 |
| 6/82 | 7.4 |
| 12/83 | 3.5 |
| 12/84 | 3.5 |
| 12/85 | 3.1 |
| 12/86 | 1.3 |
| 12/87 | 4.2 |
| 12/88 | 4.0 |
| 12/89 | 4.7 |
| 12/90 | 5.4 |
| 12/91 | 3.7 |
| 12/92 | 3.0 |
| 12/93 | 2.6 |
| 12/94 | 2.8 |
| 12/95 | 2.6 |
| 12/96 | 2.9 |
| 12/97 | 2.1 |
| 12/98 | 1.3 |
| 12/99 | 2.5** |
| 12/00 | 3.5 |
| 12/01 | 2.6 |
| 12/02 | 1.4 |
| 12/03 | 2.1 |
| 12/04 | 2.7 |
| 12/05 | 4.1 |
| 12/06 | 3.3 |
| 12/07 | 2.3 |
| 12/08 | 5.8 |
| 12/09 | None |
| 12/10 | None |
| 12/11 | 3.6 |
| 12/12 | 1.7 |
| 12/13 | 1.7 |
| * The increase in 3/74 was a special, limited-duration increase. It was effective for only 3/74-5/74. In June 1974, all payment levels reverted to their 2/74 level and the 11% increase was permanently applied on this base. ** The COLA for December 1999 was originally determined as 2.4 percent based on CPIs published by the Bureau of Labor Statistics. Pursuant to Public Law 106-554, however, this COLA is effectively now 2.5 percent. |
ghghghg
The following second chart shows COLA increases through 2022:
Note: Since 1983 COLA changes take effect the next Jan. 1
| YEAR | COLA % | YEAR | COLA % |
|---|---|---|---|
| 1975 | 8.0 | 1999 | 2.5 |
| 1976 | 6.4 | 2000 | 3.5 |
| 1977 | 5.9 | 2001 | 2.6 |
| 1978 | 6.5 | 2002 | 1.4 |
| 1979 | 9.9 | 2003 | 2.1 |
| 1980 | 14.3 | 2004 | 2.7 |
| 1981 | 11.2 | 2005 | 4.1 |
| 1982 | 7.4 | 2006 | 3.3 |
| 1983 | 3.5 | 2007 | 2.3 |
| 1984 | 3.5 | 2008 | 5.8 |
| 1985 | 3.1 | 2009 | 0.0 |
| 1986 | 1.3 | 2010 | 0.0 |
| 1987 | 4.2 | 2011 | 3.6 |
| 1988 | 4.0 | 2012 | 1.7 |
| 1989 | 4.7 | 2013 | 1.5 |
| 1990 | 5.4 | 2014 | 1.7 |
| 1991 | 3.7 | 2015 | 0.0 |
| 1992 | 3.0 | 2016 | 0.3 |
| 1993 | 2.6 | 2017 | 2.0 |
| 1994 | 2.8 | 2018 | 2.8 |
| 1995 | 2.6 | 2019 | 1.6 |
| 1996 | 2.9 | 2020 | 1.3 |
| 1997 | 2.1 | 2021 | 5.9 |
| 1998 | 1.3 | 2022 | 8.7 |
Source: Social Security Administration
It can be noted that over the years the COLA benefit has ranged from a low annual increase of 0% (2009, 2010, 2015) to a high annual increase of 20% (1972.)
hghhhghg
How is C.O.L.A. Determined?
hghghghhg
The government calculates the Social Security COLA by comparing the average CPI-W of the third quarter of the previous year to the average CPI-W of the third quarter of the current year.
According To the US Bureau of labor statistics: The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is a monthly measure of the average change over time in the prices paid by urban wage earners and clerical workers for a market basket of consumer goods and services. [The CPI-W is based on the spending patterns of urban wage earners and clerical workers. Index data are available for the U.S. City Average (or national average), for various geographic areas (regions and metropolitan areas), for national population size classes of urban areas, and for cross-classifications of regions and size classes. Individual indexes are available for more than 200 items (e.g., apples, men’s shirts, airline fares), and over 120 different combinations of items (e.g., fruits and vegetables, food at home, food and beverages, and all items).]
ufhhf
How is C.O.L.A. Added to Social Security Benefits?
jfhfhhfhhf
Everyone on Social Security receives the COLA increase. The government calculates the Social Security COLA by comparing the average CPI-W of the third quarter of the previous year to the average CPI-W of the third quarter of the current year. The year-over-year percentage increase is the COLA, or the increase in Social Security benefits beginning in December and paid in January of the following year.
For example: According to the SSA, the COLA adjustment for 2023 is 8.7%. To calculate your 2023 COLA increase, multiply your monthly payment in 2022 by 8.7% and add it to the amount you received in the same year. For example, if you earned $10,000 in 2022, your 2023 amount would be:
$10,000 x 8.7% = $870
$870 + $10,000 = $10,870 (this benefit starts in December and is paid
in January of the following year.)
Retirees who delay filing until age 70 receive an approximately 30% increase in benefits, and also participate in any C.O.L.A. increases during the period before claiming.
ghghgh
Have COLAs Kept up With Inflation?
ghghhghg
The short answer: Probably.
Social Security’s COLA has kept up well with inflation over the past 20 years, according to the Center for Retirement Research at Boston College.
But, in the short term, the COLA may not totally offset the effects of inflation. In the short-term Social Security recipients experience a short-term loss of buying power as inflation erodes benefits. As time progresses and inflation eases, these COLAs help to smooth inflation’s effects on Social Security recipients.
Not all recipients are happy with the way the COLA payments are determined and applied. But, the long-term effects of the cost of living adjustments have been very beneficial for Social Security recipients. It’s hard to dispute the fact that inflation erodes buying power, and those on fixed income are most affected (as they have no wages or wage increases to offset inflation.) The Social Security Administration’s COLA has been a very effective weapon in the fight against inflation for those on a fixed income.
However, it’s not perfect or pain-free. Because the CPI-W is a trailing index, it does not track inflation as it occurs, but in relation to past information. This means that the COLA payments are determined at the end of the year based on the difference in the CPI-W, and payments are received starting the following January. So, the beneficiaries must wait for one whole year while inflation rages before their payments are adjusted.
In general, the Social Security program and the implementation of cola increases have provided critical funds for many Americans faced with income shortfalls later in life. Social Security was never designed to replace all income generated when working. It was initiated as a safety net to provide income for the basic living expenses of the elderly.
ghghghg
Final Thoughts
ghhghghghg
- The Social Security Act was signed into law in 1935, but it took until 1954 Congress to realize that cost-of-living adjustments were needed by Social Security recipients to keep pace with inflation.
- The annual cost of living adjustments was first paid in 1975. Prior to 1975, any payment adjustments were initiated by congressional action. The 1972 Social Security legislation made cost-of-living adjustments annual and automatic.
- COLA payments have proven to be an effective way to combat inflation over the past 20 years.
- In the short term, COLA payments or marginally effective in combating inflation. But over the long term, as inflation eases, these payments have the effect of smoothing inflation and are beneficial for Social Security recipients.
ghghg
If you’d like to be a part of a free online retirement community, join us on Facebook:
COMMENTS