In order to fight inflation as well as keep social security benefits payments as stable as possible, the COLA, which is an acronym for Cost of Living Adjustment, is used to balance up the fluctuations. read more on what to expect on the new adjustments as well as how the COLA changes that occurred over the past 5 years.
What is COLA?
Simply put, it is an analytical tool for adjusting social security benefits to correspond to prevailing inflation rates. The SSA checks the urban wage earners and clerical workers’ consumer price index (CPI-W) annually because they use it as a basis for calculating annual price changes. Higher costs of living imply that there will also be increased social security payments.
COLA announcement of October month
The colas will be announced by SSA in October, particularly for the next year, which is about to affect January payments. This adjustment is of great importance to close to 70 million Americans who get social security benefits, such as retirees, disabled workers, and other beneficiaries. Whenever there is high inflation, the COLA increase becomes more crucial because it guarantees that social security benefits will increase in line with the rising cost of living.
The Last Five COLA Increases
The COLA increases that occurred within those last five years or so show how they have affected Social Security payments, and to begin with, let’s take a look:
- 2023: The 2023 COLA was set at 8.7%, which is the highest rise in more than 40 years. This drastic increase can be attributed to high levels of inflation that rocked different sectors such as energy, food, and housing throughout 2022.
- 2022: On the other hand, in 2022 COLA stood at 5.9%. In comparative terms, this represented an enormous leap when contrasted with the previous year’s figure. The adjustment helped beneficiaries cope with rising costs as the economy was slowly recovering from pandemic ravages.
- 2021: In fact, for 2021 this measure recorded only a modest increase of 1.3%. In other words, there was not much change compared to what had happened before since inflation remained low during that year, largely attributed to a stagnant economy amidst the COVID-19 pandemic with all its related effects.
- 2020: A little over half into 2020, COLA stood at 1.6%, slightly above the preceding years’ figures due to the gradual stabilization of prices, particularly in healthcare and housing industries.
- 2019: On the same note, 2.8% was recorded for COLA (cost-of-living adjustment) in 2019, which is one of the largest adjustments in recent years; that followed the period where the economy was on high rise and inflation kept escalating up until then while making everything more expensive for consumers.
Why Does It Matter?
COLA is bigger than merely an annual adjustment; it is a matter of life and death to some Americans. Suppose there were no such thing as COLA. In that case, individuals who depend on pensions or other forms of fixed income would experience a steady decline in purchasing power due to rising prices over time, making it difficult for them to buy important things like foodstuffs, housing rent, or healthcare services.
Therefore, this adjustment guarantees that Social Security payments are in line with fluctuations in prices so that people can adapt to new circumstances in terms of lifestyle.
