Can Social Security Benefits Keep Up With Inflation?

The formula for calculating the COLA is based on a subset of the main CPI called the consumer price index for urban wage earners and clerical workers (CPI-W), which measures the price changes for a particular set of goods. Each fall, the Social Security Administration (SSA) compares the average CPI-W level for July through September of that year to the average for the same period of the previous year. The percentage change between the two averages is the COLA that kicks in the following year. ​

​Falling behind in the short term …

Until recently, inflation has been tame. From 2001 through 2021, COLAs averaged 2.1 percent. There was no COLA at all in 2009, 2010 and 2015 because inflation levels didn’t increase year over year. 

But inflation returned with a vengeance in the spring of 2021. That led to a 5.9 percent COLA for benefits paid in 2022, but Social Security recipients still took a short-term hit: The CPI-W topped 8 percent in each of the first nine months of 2022, making the 5.9 percent benefit boost look small in comparison. ​

​Some categories that are important to older adults rose the most. The price of gasoline, for example, jumped 18.2 percent in the 12 months ended in September 2022 (although pump prices have fallen considerably since then), and food prices rose 8.2 percent in that time, according to the federal Bureau of Labor Statistics. Costs for medical services were up 6.5 percent.​

Furthermore, the basic Medicare Part B premium, typically deducted directly from Social Security benefits, jumped to $170.10 a month from $148.50 in 2021, a 14.5 percent increase. A big chunk of the 2022 Part B premium increase was tied to anticipated spending on a pricey new Alzheimer’s drug, Aduhelm. However, after Medicare announced the premium hike, the price tag for Aduhelm was cut in half by the drug’s maker. Medicare passed along those savings to consumers, cutting the basic Part B premium to $164.90 for 2023.​

​... but keeping up in the long term​

Over time, however, Social Security COLAs have kept up with inflation well, says Alicia Munnell, director of the Center for Retirement Research. The COLA lags inflation when prices are rising, as occurred in 2022, but it lags when inflation is moderating, too. That’s the case this year, with benefits up 8.7 percent but the CPI-W steadily slipping from 6.3 percent in January to 3.2 percent in June.

As a result, over the up-and-down course of an inflationary period, the COLA tracks changes in prices fairly well. In the past 20 years, the Social Security COLA has averaged a 2.1 percent annual gain while the overall CPI has risen an average of 2.2 percent.

“Social Security has done the job,” Munnell says. “It’s not perfect in timing — you get too little as inflation is picking up and too much as it’s slowing down. But taking the period as a whole, people have been well protected.”

Based on inflation trends so far this year, Munnell predicts a 2024 COLA of 3.4 percent to 3.7 percent. That would increase the average monthly retirement benefit ($1,837 in June) by about $62 to $68.

Whatever the increase turns out to be next year, the Social Security COLA is critical to older Americans’ income security, which is why AARP has fought hard against proposals to reduce it. Without the annual adjustment, retirees would see their benefits erode over time, and they would fall further and further behind. The COLA is a financial lifeline for many older adults, especially in periods of high inflation.