Social Security Benefits and Cost of Living Adjustments

If you are one of the approximate 65 million Americans receiving a monthly Social Security disability or retirement check, it’s the time of year when our government announces if there is to be a Cost of Living Adjustment (COLA). For 2017, (drumroll please)…there will be an increase of 0.3 percent. Not very exciting, but a larger increase than last year. (There was no increase in 2016.)

The purpose of the yearly COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation. The general increase in the price of goods over time causes the decrease in the purchasing value of money. Therefore, during times of inflation, those individuals relying on Social Security disability or retirement benefits to pay for basic necessities of life would be unable to meet their needs without the COLA consideration.

There is a mandated formula to be used in calculating the COLA based on the Consumer Price Index information determined by the Bureau of Labor Statistics in the Department of Labor. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. This “market basket” includes such things as food, beverages, clothing, rent, transportation, medical care, recreation, education and other goods and services. The Department of Labor completes a survey of thousands of Americans to determine what people are buying and how much it is costing. When a survey is repeated using the similar “market basket” the cost of such items can be compared over time.

While my explanation may sound simple, keep in mind this is a much more complicated and time consuming process. According to the Bureau of Labor Statistics, each month, data collectors called economic assistants visit or call thousands of retail stores, service establishments, rental units, and doctors’ offices, all over the United States, to obtain information on the prices of the thousands of items used to track and measure price changes in the CPI. These economic assistants record the prices of about 80,000 items each month, representing a scientifically selected sample of the prices paid by American consumers for goods and services purchased. Commodity specialists must then review all the data and strive to prevent changes in the quality of items over time from affecting the CPI’s measurement of price change.

Any adjustment to Social Security benefits 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. To put it in more simple terms, if the government determines that inflation has gone up, i.e. things are costing more, the monthly Social Security amount paid to beneficiaries will go up. When the formula reveals no increase in inflation, i.e. things are costing the same, there is no increase in monthly benefits.

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), and was intended to ensure that inflation no longer drains the value from Social Security benefits. The idea is that beneficiaries can retain the same purchasing power from year to year despite the increase in the cost of necessary goods.

Read more about the COLA, tax, benefit and earning amounts for 2017 at https://www.ssa.gov/news/cola/ or see the official Fact Sheet of all Changes to SS/Medicare tax rates, etc. https://www.ssa.gov/news/press/factsheets/colafacts2017.pdf.

If you have questions about your rights to Social Security disability, contact the disability attorneys of Syfrett, Dykes & Furr for a free consultation. (850) 795-4979.

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