History of Automatic Cost of Living Adjustment COLA ;
70 million Americans will benefit 8.7% COLA in 2023.
How is COLA Calculated in your Country?
Cost of living refers to the amount of money required to maintain a standard of living, accounting for basics like housing, food, clothing, utilities, taxes, and health care. Increases (or decreases) in the price of these necessities affect the cost of maintaining your lifestyle, and this, in turn, shapes how well your income will support you and your dependents.
Workers who belong to a union may have a cost-of-living adjustment, sometimes referred to as a cost-of-living allowance, built into their contract.
A cost-of-living adjustment (COLA) is an increase in benefits or salaries to counteract inflation.
70 million Americans will benefit 8.7% COLA in 2023.
Let’s learn How it’s done in the US.
History of Automatic Cost-Of-Living Adjustments (COLA)
The purpose of the COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation.
It is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year.
If there is no increase, there can be no COLA.
The CPI-W is determined by the Bureau of Labor Statistics in the Department of Labor. By law, it is the official measure used by the Social Security Administration to calculate COLAs.
Congress enacted the COLA provision as part of the 1972 Social Security Amendments, and automatic annual COLAs began in 1975. Before that, benefits were increased only when Congress enacted special legislation.
Beginning in 1975, Social Security started automatic annual cost-of-living allowances. The change was enacted by legislation that ties COLAs to the annual increase in the Consumer Price Index (CPI-W).
The change means that inflation no longer drains value from Social Security benefits.
The 1975-82 COLAs were effective with Social Security benefits payable for June (received by beneficiaries in July) in each of those years.
After 1982, COLAs have been effective with benefits payable for December (received by beneficiaries in January).
(1) 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.
Should COLA be Automatic Like this in your Country?
