How does Social Security calculate the COLA?

Your Social Security payment typically is adjusted annually for inflation to ensure that the purchasing power of benefits is not eroded by rising prices. This cost-of-living adjustment, or COLA, tracks inflation using a government measure of consumer prices for a variety of household goods and services.

Benefits go up if there is a measurable increase (at least 0.1 percent) in this price index from year to year. For 2023, the cost-of-living increase will be 8.7 percent, boosting the average benefit for a retired worker by $146 a month starting in January.

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That rise, fueled by a spike in prices for many goods in the wake of the COVID-19 pandemic, is the largest since 1981. The COLA was 5.9 percent in 2022, 1.3 percent in 2021 and 1.6 percent in 2020.

Keep in mind

• A COLA increase is not guaranteed. If there is no inflation in a given year, there will be no cost-of-living adjustment to benefits the following year. This has happened a handful of times, most recently in 2016.
  
• When there is a cost-of-living increase, you might not see all of it in your benefit payment. If your Medicare Part B premiums are deducted from your Social Security, as is the case with 70 percent of Part B enrollees, a Medicare rate increase could offset the COLA. However, 2023's large COLA increase will be accompanied by a rare drop in Part B costs.