Social Security adjusts the benefits it pays each year to help retirees keep up with rising costs of living. This can be especially helpful in inflationary environments. In fact, Social Security beneficiaries received an 8.7% raise for 2022 after inflation spiked higher. Last year, the cost-of-living adjustment, or COLA, was significantly lower, at just 3.2%.
With that in mind, what would be considered a "typical" Social Security COLA? Let's look at Social Security COLAs since 1975 to see what the average annual adjustment has been, as well as the highs and lows. And we'll also look at the COLA that Social Security beneficiaries can expect for next year.
You might be asking yourself, "Why 1975?" This wasn't just an arbitrary date I picked to calculate a long-term average. 1975 was the first year when Social Security COLAs were based on Consumer Price Index (CPI) inflation data. Before 1975, any increases to Social Security were set by legislation.
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The average Social Security COLA since 1975
I won't keep you in suspense. Since the modern method of determining the Social Security COLA went into effect in 1975, the average has been 3.77%. This is the result of adding all the historic COLAs since that time and dividing by the 49 years for which we've had annual adjustments.
Having said that, Social Security COLAs have varied dramatically over time. Since 1975, the Social Security COLA has been zero in three different years. (Note: Even in an deflationary environment, the COLA cannot be negative.) It has reached double digits twice, with a high of 14.3% in 1980.
What will the Social Security COLA be this year?
We should learn what the 2024 Social Security COLA is in October. This is the adjustment that will go into effect with benefits payable for December, but since Social Security is paid one month in arrears, this means it will be reflected in the payment that is received in January 2025.
Even though the Social Security COLA is based on CPI data, which is readily available, there's no way to know for sure what this year's COLA will be just yet. The reason is that the COLA is calculated by comparing the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) from the third quarter with the third-quarter data from the previous year.
In other words, the 2024 COLA will exclusively depend on inflation data from July, August, and September. And until September's CPI data is made public, we won't know for sure.
Having said that, we do have some idea. As my colleague Maurie Backman recently wrote, the nonpartisan Senior Citizens League projects that the COLA will be 2.57% based on the CPI inflation data so far this year. This would be the smallest Social Security COLA since 2020 and would be more than a full percentage point below the long-term average.
For context, the average Social Security benefit for a retired worker as of May 2024 is $1,916.63 per month. With the projected 2.57% COLA, the average would rise to $1,965.89. In other words, the average retiree would get an additional $49.26 each month, or about $591 in additional retirement income per year.
The bottom line is that the Social Security COLA helps the Social Security benefits of retired workers, spouses, survivors, and disabled individual keep up with rising costs over time. And even a seemingly small and below-average increase can result in a significant increase in a retiree's annual income.
