About Social Security’s ‘guaranteed’ annual cost-of-living adjustment

Dear Rusty: I’ve been reading a lot lately about speculation on what next year’s benefit increase will be, and it seems like most of the experts are suggesting a range of 2.5 to 3 percent. My neighbor says don’t worry about it, because there will always be some level of increase come January. It’s guaranteed, right? Signed: Retired But Questioning

Dear Retired: You’ve brought up a common belief about the annual Social Security COLA, one that we hear often. Let’s start with some background. Each year’s COLA results from comparing the third quarter average Consumer Price Index each year to the same average from the preceding year. The result of dividing the current year’s average by the previous year’s average produces the COLA for the following year. For 2024’s adjustment, the 2023 third-quarter average was 301.2 and the comparable figure for 2022 was 291.9, producing the 3.2 percent benefit addition.

It’s not always the case that the year-to-year CPI calculation produces a positive result, as was the case three times so far this century. As recently as 2016, for example, the 2015 third-quarter average was 233.3 and the comparable figure for 2014 was 234.2, producing a negative change. Fortunately for beneficiaries, Social Security law prohibits a negative COLA, so the negative result was ruled out and the COLA for 2016 was zero.

So, the rumor that there will always be a benefit increase in January is untrue, although having only three zero COLA years since the start of automated adjustments in 1974 leads folks to assume there will always be a boost in the new year. The size of the adjustment fluctuates with economic cycles and has ranged from a high of 14.3 percent in 1980 to 0.3 percent in 2017 (excluding, of course, the zero years). Incidentally, the historical average since automatic COLAs began is 3.8 percent, so the 2024 adjustment of 3.2 percent isn’t that far from the average.

Social Security’s rules are myriad and often confusing, but no question is too simple to be asked. The AMAC Foundation’s Social Security Advisory Service is available, at no charge, to answer all your Social Security questions, via email at SSAdvisor@amacfoundation.org or call (888)750-2622.