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A Social Security COLA May Be in Your Future

But don't get too excited. It will be modest.

by: Carole Fleck | from: AARP Bulletin | June 21, 2011

After two years of no cost-of-living allowance, Social Security recipients will likely see more money in their checks in 2012.

But don't get too excited. The increase is expected to be quite modest.

See also: Top 25 Social Security questions.

According to an analysis of the annual Social Security Trustees Report released Tuesday by the Center for Retirement Research at Boston College, the inflation measure used to calculate COLAs will show an increase in the cost of certain goods and services.

In 2008, the last year in which recipients saw an increase, rising energy prices pushed the COLA to 5.8 percent. It was the highest increase since 1982.

The COLA is determined by comparing the third-quarter consumer price index (CPI) with the previous year's third quarter.

"On its current trajectory," the report said, "... COLA payments will resume."

Social Security cards and U.S. dollars for COLA in 2012

Social Security recipients haven't seen a COLA increase since 2008. — Nick M. Do/iStockPhoto

But according to the latest trustees report, beneficiaries aren't projected to nab such a generous bump. It predicts the COLA that will kick in starting in January 2012 will be 0.7 percent.

Officials won't announce the raise until October, but given that gas prices and other goods are higher than they were last year, a COLA is almost certain for more than 58 million Social Security recipients.

Many may not see an increase at all because Medicare premium increases will absorb most or all of it. Most people have Medicare premiums deducted from their checks.

Advocacy groups, including AARP, say older adults have suffered financially by the lack of a COLA for the last two years. Prices for goods and services may not have gone up during that time, but out-of-pocket health care costs on which older adults spend much of their income continue to soar.

One thing is certain, however, and that is the unpredictability of COLAs.

The report by the Center for Retirement Research says the latest surge in prices, primarily driven by high energy costs, "could prove temporary," and that means the "COLA roller coaster could be starting again."

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Carole Fleck is a senior editor for the AARP Bulletin