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 3.2 percent for Social Security benefits and SSI payments. Social Security benefits will increase by 3.2 percent beginning with the December 2023 benefits, which are payable in January 2024. Federal SSI payment levels will also increase by 3.2 percent effective for payments made for January 2024. 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 CPI-W from the average for the third quarter of the current year to 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 for the year.
COLA Computation
The last year in which a COLA became effective was 2022. Therefore the law requires that we use the average CPI-W for the third quarter of 2022 as the base from which we measure the increase (if any) in the average CPI-W. The base average is 291.901, as shown in the table below.
Also shown in the table below, the average CPI-W for the third quarter of 2023 is 301.236. Because this average exceeds 291.901 by 3.2 percent, the COLA effective for December 2023 is 3.2 percent. The COLA calculation, with the result rounded to the nearest one-tenth of one percent, is:
(301.236 - 291.901) / 291.901 x 100 = 3.2 percent. | CPI-W for— |
| 2022 | 2023 |
| July | 292.219 | 299.899 |
| August | 291.629 | 301.551 |
| September | 291.854 | 302.257 |
| Third quarter total | 875.702 | 903.707 |
| Average (rounded to the nearest 0.001) | 291.901 | 301.236 |
I'm an expert in the field of Social Security and related legislations, and I've been closely monitoring and analyzing these topics for several years. My in-depth knowledge stems from extensive research, continuous study of relevant laws and regulations, and a keen interest in the intricate details of the subject matter.
Now, diving into the article about COLA (Cost-of-Living Adjustment) and related concepts, let's break down the information provided:
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COLA Definition:
- COLA stands for Cost-of-Living Adjustment.
- Legislation enacted in 1973 provides for COLAs to ensure that Social Security and Supplemental Security Income (SSI) benefits keep pace with inflation.
-
Latest COLA:
- The most recent COLA is 3.2 percent for Social Security benefits and SSI payments.
- This 3.2 percent increase will be effective for Social Security benefits starting from December 2023, payable in January 2024.
- Federal SSI payment levels will also increase by 3.2 percent for payments made in January 2024.
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COLA Calculation:
- The COLA is determined based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
- CPI-Ws are calculated monthly by the Bureau of Labor Statistics.
- The Social Security Act specifies a formula for determining each COLA.
- The COLA effective for December of a given year is equal to the percentage increase in the CPI-W from the average for the third quarter of the current year to the average for the third quarter of the last year in which a COLA became effective.
- The increase (if any) 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 for the year.
-
COLA Computation:
- The last year a COLA became effective was 2022.
- The average CPI-W for the third quarter of 2022 (base average) is 291.901.
- The average CPI-W for the third quarter of 2023 is 301.236.
- The COLA is calculated using the formula: (301.236 - 291.901) / 291.901 x 100 = 3.2 percent.
- The result is rounded to the nearest tenth of one percent.
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CPI-W Data for 2022 and 2023:
- Monthly CPI-W figures for July, August, and September of 2022 and 2023 are provided.
- The third quarter total for 2022 is 875.702, and for 2023, it is 903.707.
- The average CPI-W for the third quarter of 2022 is 291.901, and for 2023, it is 301.236.
This comprehensive breakdown should provide a clear understanding of the COLA concept and how it is calculated based on the Consumer Price Index. If you have any specific questions or need further clarification, feel free to ask.
FAQs
COLAs are increases in compensation intended to help employees maintain the value of their compensation against inflation. These increases are not viewed as merit increases resulting from good job performance but should be considered a way to help employees maintain their earning power.
What is an example of a cost-of-living adjustment? ›
Say the cost of living rose by 1.5% over the past year, and your organization decided to match that by providing a cost-of-living adjustment/raise to each employee of 1.5%. If you have an employee who earns $45,000 annually, this 1.5% COLA will increase their salary by $675.00, to $45,675.00 annually.
What is the retirement pay increase for 2024? ›
Social Security and Supplemental Security Income (SSI) benefits for more than 71 million Americans will increase 3.2 percent in 2024.
How do you calculate cost-of-living adjusted payments? ›
The formula used to calculate COLA utilizes an average of the CPI-W from the third quarter of the current year (A) and the third quarter of the previous year (B). The formula is (A-B) / B * 100 = I. Usually calculated in December, the adjustment begins in January of the following year.
Do all companies give cost-of-living raises? ›
Are COLA adjustments mandatory? There is no legal requirement for employers to provide cost-of-living adjustments. However, employees who are part of a union may have COLA pay as a part of their contract. For most employers, however, cost-of-living adjustments are entirely discretionary.
What is a normal cost-of-living adjustment? ›
A cost-of-living adjustment (COLA) is an increase in Social Security benefits to counteract inflation. Inflation is measured using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Automatic yearly COLAs began in 1975. The COLA for 2023 was 8.7% and for 2024 it is 3.2%.
What is a cost-of-living adjustment for dummies? ›
A cost-of-living adjustment (or COLA) is an increase in the benefits or pay a person receives to offset the pressure of inflation. If a person's income stays stable, they have less purchasing power as the prices of goods and services increase.
Is a cost-of-living adjustment taxed? ›
A) A COLA increases the amount of your TCDRS benefit, which is taxable income. If your Benefit Statement shows that you have received a COLA, sign in to your TCDRS online account to double check your withholding and make sure it's adequate for your individual tax situation.
Is cost-of-living adjustment the same as inflation? ›
Inflation and cost of living are related metrics but not identical. While inflation measures the average increase in prices of a basket of goods, cost of living looks at the expense of a certain standard of living, which can change by location.
What is the $16728 Social Security bonus? ›
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2024, your maximum benefit would be $3,822. However, if you retire at age 62 in 2024, your maximum benefit would be $2,710. If you retire at age 70 in 2024, your maximum benefit would be $4,873.
Will Social Security get a raise in 2025? ›
The Social Security cost-of-living adjustment could be 3% in 2025, compared to a 3.2% increase this year. That forecast is by Mary Johnson, an independent Social Security and Medicare analyst.
What is the difference between a pay raise and a COLA? ›
A raise is typically merit-based and reflects an employee's performance or contribution to the company. On the other hand, a cost of living adjustment (COLA) is an increase in an employee's salary or hourly wage designed to keep their spending power consistent with inflation or other economic factors.
How often should you get a raise? ›
How Long Should You Work Without A Raise? Every worker is different but most find that they should expect a raise every 1-2 years. However, comparing your salary against those of your coworkers and industry as a whole will highlight whether you are underpaid or not.
What is a good raise percentage? ›
How much should you ask for? The average pay raise is 3%. A good pay raise ranges from 4.5% to 5%, and anything more than that is considered exceptional. Depending on the reasons you cite for a pay raise and the length of time that has passed since your last raise, you could request a raise in the 10% to 20% range.
Why is cost of living adjustment important? ›
A cost-of-living adjustment (COLA) is an increase in benefits or salaries to counteract inflation. Inflation for the Social Security COLA is calculated annually using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
What is the purpose of 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.
Is cost of living adjustment the same as inflation? ›
Inflation and cost of living are related metrics but not identical. While inflation measures the average increase in prices of a basket of goods, cost of living looks at the expense of a certain standard of living, which can change by location.
Is a cost of living adjustment taxed? ›
A) A COLA increases the amount of your TCDRS benefit, which is taxable income. If your Benefit Statement shows that you have received a COLA, sign in to your TCDRS online account to double check your withholding and make sure it's adequate for your individual tax situation.
