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Key takeaways
- Protect your budget: COLA adjustments, as Carly Roszkowski notes, help benefits keep up with inflation.
- Maximize Social Security by reviewing your budget every January after the COLA increase, Roszkowski advises.
- Stay informed about future benefits by tracking inflation trends and using tools recommended by Roszkowski.
Summary
Social Security’s cost-of-living adjustment, or COLA, plays a vital role in how far your monthly benefit stretches, especially as inflation rises. Carly Roszkowski, an expert on retirement and Social Security, explains that COLA ensures your benefits keep up with the real-world costs Americans face each year. By tracking inflation with the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), the Social Security Administration adjusts payments annually — sometimes resulting in substantial increases, like the 8.7% bump in 2023.
The Social Security COLA is more than just a number; it’s a safeguard for millions who rely on Social Security to afford housing, groceries and medical care. To make the most of your COLA, monitor inflation trends throughout the year, review your budget each January, and use any increase to strengthen your financial security. Stay informed by subscribing to trusted resources and using tools like a Social Security calculator to estimate your future benefits.
The key takeaways and summary were created with the assistance of generative AI. An AARP editor reviewed and refined the content for accuracy and clarity.
Full Transcript:
[00:00:00] What if I told you one word could decide how far the dollar stretches for over 69 million Americans?
[00:00:06] I’m talking about the Social Security Administration’s cost-of-living adjustment, or COLA. This unassuming acronym might sound dull, but it’s a critical lifeline to older
[00:00:17] Americans, helping them make ends meet. So what is COLA? It’s an annual automatic adjustment to your monthly Social Security
[00:00:25] payment to match inflation. Some years it’s big, some it’s small, some no increase at all.
[00:00:31] So the COLA is a big news story every year, because older Americans rely on it to protect against inflation. Without it, affording the
[00:00:40] necessities would be much harder. It’ all calculated using something called the Consumer Price Index for
[00:00:46] Urban Workers and Wage Earners, or CPI-W. It measures changes in prices paid by consumers for goods and services.
[00:00:56] Every year, the Labor Department checks prices at thousands of businesses to measure how much costs have changed.
[00:01:03] If they’ve gone up, in October, the Social Security Administration will announce that payments will follow suit to help retirees maintain their purchasing power.
[00:01:12] For example, if the CPI-W shows 3% inflation, COLA will be 3%.
[00:01:18] Since the advent of COLA in 1975, rates have averaged around 3.8%.
[00:01:25] The highest was in 1980 at 14.3%. In late 2022, the Social Security Administration announced its biggest cost-
[00:01:35] of-living bump in more than 40 years, a major 8.7% increase sparked by rising
[00:01:42] inflation due to the COVID-19 pandemic. That meant in January of 2023, the average monthly payment for
[00:01:49] retirees went up more than $146, for an additional $1,752 per year.
[00:01:59] The COLA is announced every October and takes effect the following January. You can’t control what it will be, but you can take steps to prepare. First,
[00:02:09] monitor inflation throughout the year to estimate the potential increase. Then revisit your budget every January after the COLA is applied, and allocate
[00:02:19] any increases toward essential expenses, emergency savings and debt reduction.
[00:02:26] If you have a surplus after your needs are met, consider using any extra funds to increase savings or invest in low-risk assets.
[00:02:34] You can subscribe to our Money Matters newsletter at aarp.org/
[00:02:40] newsletters to get COLA and other Social Security news. For an estimate on what your
[00:02:45] future Social Security payment may be, check out our Social Security calculator. The link is down below.
[00:02:52] Thank you for watching. Until next time.
