The Cost-of-Living Adjustment (COLA) is an increase in Social Security benefits to adjust for the effects of inflation. Since 1975, COLA increases have been automatically calculated and applied to Social Security benefits each year.

The magnitude of the COLA vary from one year to the next and they are determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W measures changes in prices for a selection of goods and services that urban wage earners and clerical workers buy. Currently, the COLA for 2023 is 8.7%.

The annual COLA is vitally important for millions of seniors in the US who rely on their Social Security benefits to cover their basic needs. Without the COLA, those benefits would not keep up with the cost of living and would eventually diminish. By allowing retirees to maintain their purchasing power by providing regular COLA, their living standards don’t decline due to inflation.

In addition to recipients of Social Security, many retired military personnel also receive COLA increases to their pension payments. Veterans receiving disability benefits also receive COLA increases when Social Security benefits are adjusted for inflation.

The COLA is determined by the rate of inflation in the United States. If the CPI-W drops, there is no commitment for a COLA for the year. It is important to note that COLA increases are not retroactive, so if the CPI-W is not high enough, the COLA increase will not be applied until the following year.

The COLA is an important program that helps millions of retirees maintain their standard of living with their Social Security benefits and other retirement payments. Combined with other support programs, the Cost-of-Living Adjustment continues to be an important part of America’s social safety net.