Dear Inquiring Mind: I’m happy to explain how the annual Cost of Living Adjustment (COLA) for Social Security is computed and, although it’s outside the realm of Social Security I usually deal with, how members of Congress get raises in their pay.
The normal COLA formula affecting Social Security uses the Consumer Price Index for Urban Wage Earners and Clerical Workers, known simply as the “CPI-W.” The CPI-W measures change to consumer prices in several categories such as food, housing, transportation, etc., as computed monthly by the U.S. Bureau of Labor Statistics.
The formula to compute COLA each year compares the average CPI-W for the third quarter of the current year to the average CPI-W for the third quarter of the previous year. If there is a sufficient difference, that difference (expressed as a percentage) becomes the COLA increase percentage for next year. If there is no difference (or only a tiny difference), no COLA increase is awarded because no inflation has occurred from one year to the next, but there have only been three years since 1975 that no COLA has been given. The 2021 COLA increase was 1.3%, and the 2022 COLA increase will be 5.9%, the latter reflecting the high inflation we’ve experienced this year.
Increases to Congressional salaries are different. Although there is a statute allowing for automatic salary increases for members of Congress, that law can be overruled by legislation that suspends those automatic increases. Through such superseding legislation, Congressional pay has been frozen since 2009. The last salary increase received by members of Congress was 2.8% in January 2009, when each general member’s annual salary became $174,000. Congressional salaries have not increased since that time, so, with dollar amounts adjusted for inflation, pay for members of Congress effectively declined by 17% between 2009 and 2020. But don’t feel sorry for them. They have plenty of other perks to sustain them, and Representatives who already collect Social Security get the standard COLA increase to their SS benefit (as we all do).
While Congressional salaries have been frozen for years, there has been much recent debate about whether the CPI-W is an accurate measure of inflation for elderly Americans who rely on Social Security benefits. A commonly heard argument is that instead of the CPI-W, a separate Consumer Price Index known as the “CPI-E” (Consumer Price Index for the Elderly) would more accurately measure inflation for seniors and, thus, should be used to compute COLA for Social Security beneficiaries. Studies have shown that the CPI-E would provide a slightly improved COLA for SS beneficiaries, but there are other formulae being considered too. It remains to be seen whether future legislation will change how COLA is computed.
This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation‘s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation, and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at [email protected].
