The COLA (Cost-of-Living Adjustment) was enacted in 1973 to provide adjustments to retirees receiving Social Security. The 2015 adjustment has been established and is a 1.7% increase over the 2014 benefits. This equates to about $20 per month increase of the average benefit being received.
How do they determine the benefit increase? The Social Security Act uses a formula to determine each COLA. The formula relies on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers. This index is calculated on a monthly basis by the Bureau of Labor Statistics.
A COLA effective for December 2014 (Payable in Jan 2015) is equal to the percentage increase (if there is an increase) in the average CPI for the third quarter of 2014 over the average for the third quarter of the last year in which the COLA became effective (2013 in this example). This graphic from the Social Security website should clarify the concept a bit more.
(234.242 - 230.327) / 230.327 x 100 = 1.7 percent.
Since our economy has been growing so slowly (but certainly making progress) this increase may not seem like much. In the years that our economy begins to grow very quickly and CPI averages make large changes, this can be a significant help in keeping a retiree’s dollar constant in today’s world.
Brandon M. Smith,
LPL Investment Advisor Representative
Lifetime Planning, Inc.
Securities offered through LPL Financial, member FINRA/SIPC