Social Security plays a vital role in the financial livelihood of retirees, and especially valuable is Social Security's provisions to keep up with rising costs. Annual cost of living adjustments boost monthly payments for recipients in most years, with the goal of helping those living on fixed incomes continue to make ends meet even when their living expenses rise.
As important as Social Security COLAs are for retirees, though, it's important not to exaggerate their impact. Even though COLAs have unquestionably boosted what a retiree in 1999 has received over the past 20 years, they haven't produced anything like a windfall for cash-strapped seniors.
Slow but steady Social Security increases
The Social Security Administration first started making automatic cost of living adjustments in 1975, responding to legislative changes that recognized the value of having benefit increases tied to inflation rather than made on an ad hoc basis by Congress. That proved especially important in the late 1970s and early 1980s, when inflation rates topped out above 14% per year.
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After that brief spike, though, benefit increases became smaller. From 1983 to 1999, COLAs ranged from 1.3% to 5.4%. Since 2000, they've been even smaller, with the increase exceeding 4% in only two years while three years saw no increase at all.
What COLAs have done for the average Social Security recipient
Back in 1999, the average retired worker received $804 per month from Social Security . When you look at the COLAs that the SSA has added since then, you'll see the year-by-year impact on that typical retiree's benefits:
|
Year |
COLA |
New Monthly Benefit |
|---|---|---|
|
1999 |
Starting |
$804 |
|
2000 |
2.5% |
$824 |
|
2001 |
3.5% |
$853 |
|
2002 |
2.6% |
$875 |
|
2003 |
1.4% |
$887 |
|
2004 |
2.1% |
$906 |
|
2005 |
2.7% |
$930 |
|
2006 |
4.1% |
$968 |
|
2007 |
3.3% |
$1,000 |
|
2008 |
2.3% |
$1,023 |
|
2009 |
5.8% |
$1,082 |
|
2010 |
0% |
$1,082 |
|
2011 |
0% |
$1,082 |
|
2012 |
3.6% |
$1,121 |
|
2013 |
1.7% |
$1,140 |
|
2014 |
1.5% |
$1,157 |
|
2015 |
1.7% |
$1,177 |
|
2016 |
0% |
$1,177 |
|
2017 |
0.3% |
$1,181 |
|
2018 |
2% |
$1,205 |
|
2019 |
2.8% |
$1,239 |
|
2020 |
1.6% |
$1,259 |
Data source: SSA. Years indicate when adjusted amount first gets paid.
After more than 20 years, an $804 monthly benefit has risen to $1,259. That amounts to a roughly 57% increase -- a nice gain, but not necessarily as large as you might expect.
The number also hasn't kept up with the average benefit for new retired workers over time. The SSA recently said that the average monthly benefit for all retired workers -- including those who retired between 1999 and 2020 -- is $1,503. Increases in the maximum amount of earnings each year on which Social Security benefits get calculated have played a role in boosting benefits for newer retirees, but the key takeaway is that you can't just look at average figures over time and assume that older retirees are keeping up with their younger counterparts.
Is it enough?
Whether the size of those monthly benefit increases is fair is a matter of debate. Some argue that the specific measure of consumer price inflation that determines Social Security COLAs doesn't match up well to actual goods and services that retirees need, making it less effective in preserving purchasing power for recipients. In addition, rising Medicare costs have also played a role in limiting increases in net Social Security benefits, as most participants in the senior healthcare program have their premiums taken directly out of their Social Security checks.
Regardless of your opinion on whether COLAs are big enough, something has been far better than nothing for the retired workers who rely the most on those benefits to make ends meet. Future legislation might aim to make changes to how cost of living adjustments get made, but for now, they've served a useful role in helping Social Security recipients over time.
