Social Security COLA: Understanding the Annual Cost of Living Increase

Important: We updated this article in October 2024 after fact-checking against current Social Security Administration policy and data. In 1975, the Social Security Administration (SSA) began reviewing the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The Social Security Administration (SSA) does this to determine annual cost-of-living adjustment for all beneficiaries. Think of this adjustment as a small “raise” for people’s monthly benefit checks. The Social Security COLA increase can change a lot from year to year. And unfortunately, some years saw no measurable changes in the annual cost of living from one reporting period to the next. It’s interesting to track these annual COLA rates, since they impact millions of disabled and older Americans.

The cost of living tends to increase every year, and many people thinking about applying for Social Security disability (SSD) benefits wonder if their payments will reflect this. Payment amounts that may be adequate one year may not be enough to live on the next, for example. So does the SSA announce a new cost-of-living adjustment (COLA) every year?

In short, yes. However, COLA does not guarantee a monthly pay raise for everyone who receives Social Security benefits in any given year. We’ll explain why, affected benefit types, and what goes into this key economic calculation every October.

Whose Benefits Go Up When the Social Security Administration Announces an Annual Increase?

The annual COLA affects monthly pay amounts for Social Security recipients, certain military veterans, and Medicare premium costs. Every October, the SSA announces any percentage increase which will then go into effect the following January.

Supplemental Security Income (SSI)

This federal program began in January 1974 and pays a set cash benefit to children and adults who:

• Are blind, disabled, or at least 65 years old, AND
• Have very low to no income and few available financial resources (i.e., assets they can easily sell for cash).

The Social Security Administration manages the Supplemental Security Income program, including distributions for those federal payments. In December 2023, about 7.4 million needy adults and children qualified to receive Supplemental Security Income. Of those, about 85% were either either blind or disabled, while seniors made up the other 15%.

Social Security Disability Insurance (SSDI)

Social Security disability insurance (SSDI) is what most people think of when they say “disability benefits.” This program helps workers who become disabled before reaching full retirement age tap into their maximum Social Security benefit. SSDI is the only way to receive the monthly retirement income older workers normally qualify for when they retire at age 67 before you reach that birthday.

It also pays a dependent benefit to eligible spouses and children of disabled workers on SSDI. According to the SSA, more than 1 in 4 20-year-olds today will become disabled before reaching full retirement age at 67. People on SSDI make up 11.6% of those who received Social Security benefits in December 2023.

Social Security Benefits for Retirees

Almost 78% of Social Security benefits go to retired workers, their spouses, and their dependent children. Retired workers can choose to draw Social Security as early as age 62 with a 30% permanent reduction in benefits. However, you must wait until your 67th birthday to draw “normal” Social Security retirement benefits. People get access to this monthly retirement income by paying a Social Security tax on every paycheck during their working years.

Survivors of Deceased Social Security Beneficiaries

Spouses, children, and other qualified dependents may also receive survivor’s benefits when a Social Security beneficiary dies.

The SSA also pays a death benefit of $255 to eligible members of the deceased worker’s immediate family.

Military Families and Honorably Discharged Veterans

The annual COLA changes don’t directly impact federal military retirement program benefits. However, these programs use the same timeframe and measuring formula as the SSA to compute the next year’s pay amounts. Any veteran who receives income from the U.S. Department of Veterans Affairs (VA) receives the same pay increase.

The Latest 2.5% COLA: What to Know

The most recent COLA (2.5%) is on par with the past decade’s average increase of 2.6%. The COLA goes into effect in January 2025 and includes the following updates:

• Average SSDI payments rise from $1,542 in 2024 to $1,580. Families with an eligible spouse and at least one child will receive $2,826 per month, on average.
• Maximum monthly individual SSI benefit increases from $943 to $967. For couples, the max SSI payment will be $1,450 per month.
• Average Social Security retirement pay for one person increases from $1,927 to $1,976 per month. Retired couples who both receive Social Security income will see an average of $3,089, up from $3,014 monthly in 2024.

The Role of the Consumer Price Index in Calculating COLA

Social Security COLA equals index growth from the highest Q3 average CPI-W recorded (usually the previous year) to the average CPI-W for Q3 this year. In plain English, the CPI tracks inflation and how much prices changed over the prior 12 months. For example: In 2021, gas cost $3.03 per gallon. But in 2022, most Americans paid $3.98 per gallon for gas. The CPI-W averages how much that gas cost consumers in every U.S. state. Then, the CPI-W converts that number into a percentage. (This annual CPI calculation also includes average price for services and wages in the U.S.)

This means in September 2022, people that track CPI-W saw average prices go up about 8.7% over September 2021 prices. So in October 2022, the government approved an 8.7% COLA raise.

But if average prices for goods, services and wages fall or stay the same during any given year, then there’s no COLA increase. Before 1975, Congress used legislation to set any increases for retirement and disability benefit payments. Since 1975, the SSA has exclusively used the CPI-W to determine any annual COLA percentages.

Why Isn’t There A Cost of Living Raise Every Single Year?

You’re probably thinking, “prices still keep going up. Why don’t my benefits pay more each year, too?” Here’s why: If average prices go down or stay the same the next year, then there’s no COLA increase. Here are the most recent years without a COLA increase (or payments rose less than 1% compared to the previous year):

• 2009
• 2010
• 2015
• 2016 (.3% increase)

Tracking Higher COLA Changes From Decades Past

When COLA adjustments began in the mid-1970s, they were significant. Annual inflation was extremely high in the 1970s (much higher than it is today). So, any Social Security COLA changes during that period reflected a high inflation rate. For example, in 1975, Social Security benefits increased 8% over the previous year. Then in 1979, they increased another 9.9%. The SSA announced a record COLA increase of 14.3% in 1980, then another 11.2% raise in 1981. Since that first decade using the new CPI-W calculation formula, most COLA increases seemed steady, but fairly low. Throughout the 1980s, the COLA rose between 1%-4% every year. The biggest COLA increases since then happened in 2022 (8.7% increase) and 2021, which saw a 5.9% raise in benefits.

With no measurable COLA changes from 2015-2016, many disability beneficiaries welcomed the steady raises since then.

Which Years Had The Highest Cost of Living Raises Since 1975?

Since 1980, only a handful of years saw COLA increases that rose above 4%. Below, we’ve listed the highest raises in years going back to 1975:

• 1975: 8%
• 1976: 6.4%
• 1977: 5.9%
• 1978: 6.5%
• 1979: 9.9%
• 1980: 14.3%
• 1981: 11.2%
• 1982: 7.4%
• 1987: 4.2%
• 1989: 4.7%
• 1990: 5.4%
• 2005: 4.1%
• 2008: 5.8%
• 2021: 5.9%
• 2022: 8.7%

If you average each year’s Social Security COLA increase going back to 1975, it’s 3.8%. Since 2000, the cost-of-living change averages out to 2.6%, however.

How to Get Free Help Qualifying for Disability Benefits

Wondering if you might qualify for disability if your health makes full time work harder every year you grow older? Many people find the application process difficult. It can take weeks just to fill out and file all the required paperwork, and nearly a year to receive a response. However, having a lawyer file your claim makes benefit approval nearly 3x more likely within 6 months.

A Social Security lawyer charges $0 up front to help you qualify for disability payments. If your application fails to succeed, you still owe the attorney nothing in legal fees. And if you do receive disability, then you only owe your lawyer one small fee afterwards.

Want to know whether you are likely to get disability before you file an application? Click the button below to talk to an advocate near you for a free, no-obligation claim evaluation to find out:

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