Social Security

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 1.7 percent for Social Security benefits and SSI payments. Social Security benefits will increase by 1.7 percent beginning with the December 2012 benefits, which are payable in January 2013. Federal SSI payment levels will also increase by 1.7 percent effective for payments made for January 2013. 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 average CPI-W for the third quarter of the current year over 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.

COLA Computation
The last year in which a COLA became effective was 2011. Therefore the law requires that we use the average CPI-W for the third quarter of 2011 as the base from which we measure the increase (if any) in the average CPI-W. The base average is 223.233, as shown in the table below.

Also shown in the table below, the average CPI-W for the third quarter of 2012 is 226.936. Because this average exceeds 223.233 by 1.7 percent, the COLA effective for December 2012 is 1.7 percent. The COLA calculation, with the result rounded to the nearest one-tenth of one percent, is: