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The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE: The Good Brigade/Getty Images October 13, 2022 Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more. Bankrate reporter Brian Baker covers investing and retirement. He has previous experience as an industry analyst at an investment firm. Baker is passionate about helping people make sense of complicated financial topics so that they can plan for their financial futures. Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Bankrate logo The Bankrate promise
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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our reporters and editors focus on the points consumers care about most — how to save for retirement, understanding the types of accounts, how to choose investments and more — so you can feel confident when planning for your future. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. If you’re one of the some 70 million people receiving Social Security benefits, you probably pay close attention to the cost-of-living adjustment, or COLA, which is announced in October each year. The COLA is a change in your monthly benefit to ensure that your purchasing power remains the same even . In 2021, the Social Security Administration announced that the , the largest increase since 1982. In 2022, the Social Security Administration announced that the COLA for 2023 benefits , the largest increase since 1981. Here’s how the COLA is figured and who receives the benefit. How the COLA is calculated
By law, the cost-of-living adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a measure of inflation calculated by the Bureau of Labor Statistics (BLS). To figure the index, the BLS administers a consumer expenditure survey to collect information every three months from approximately 7,000 individuals and families about the things they buy regularly — everything from personal care products to vehicle registration fees. BLS data collectors then call retail stores, doctor’s offices and service establishments to determine the price changes for the approximately 80,000 items included in the CPI-W. If there is no change in the CPI-W — which was the case in 2015 — there is no COLA for the following year. In 2016, there was a small increase of 0.3 percent in the COLA, which went into effect at the start of 2017. Here’s a historical look at the COLA increases over the last 10 years: Year COLA increase Year COLA increase 2022 8.7% 2017 2.0% 2021 5.9% 2016 0.3% 2012 1.3% 2015 0% 2019 1.6% 2014 1.7% 2018 2.8% 2013 1.5% Source: Social Security Administration The CPI-W and how it is calculated are sometimes the subject of debate. For instance, because it is based on a basket of products reflecting the spending of younger, working people, some critics say it doesn’t accurately measure the inflation experienced by older retirees who may purchase more prescription drugs and medical services. So a year with a low increase – or none at all – may really hurt Social Security recipients. Why a COLA increase is so important
While COLA increases may seem paltry, even a small adjustment makes a big difference in the value of your dollar over time. For instance, while inflation has been extremely low for the past 10 years, it averaged around 2.4 percent a year from 1990 to 2020. How big a difference can 2.4 percent inflation make? Let’s say you retire today at age 62 with a $2,000 monthly benefit. With inflation at 2.4 percent, you’d need a monthly benefit of $2,658 to maintain your purchasing power when you hit 74 years old. Another 10 years and you’d need $3,370 each month to have the same purchasing power as when you first retired. So at age 84 without a COLA, your money wouldn’t go nearly as far as it did when you first started receiving benefits. Stashing money in a high-yielding or a is one way to help beat inflation. But it’s useful to have a diversified portfolio of investments that can grow over time and potentially earn more, helping you grow your purchasing power. While inflation was relatively tame in the 2010s, it’s been much higher in 2021 and 2022. There have even been times—such as in the 1970s when legislation was enacted to provide COLAs—when inflation was in the double digits. For people living on a fixed income, the COLA is a critical safety net. But assuming Social Security will cover all your bills in retirement is one of the biggest mistakes that near-retirees make. Here’s how much . Who receives a COLA
While Social Security retirement recipients are the largest group to benefit from a COLA, they aren’t the only ones. Individuals receiving Supplemental Security Income, a federal program to help seniors age 65 or older, blind and disabled people, and individuals receiving disability payments also get COLAs. Military and federal civil service retirees have cost-of-living adjustments as well, and some unions negotiate COLAs in their contracts. Finally, eligibility for such government programs as food stamps and free school lunches is also tied to changes in the CPI-W. Bottom line
A cost-of-living adjustment provides a key way that Social Security recipients and others can avoid having their purchasing power decline significantly over time. Those investing for retirement need to ensure that they have money there when they need it, which is why it’s so critical that . SHARE: Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more. Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Related Articles