You've no doubt heard by now that Social Security recipients will see their monthly checks increase by 8.7% next year. And you probably already know that it's the largest benefits increase in more than four decades.
But how does the upcoming Social Security cost-of-living adjustment (COLA) compare to the adjustments given more than 40 years ago? Here's how the huge Social Security increase announced last week ranks historically.
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Looking back
Automatic annual Social Security COLAs went into effect in 1975. The goal from the beginning was that the adjustments would help protect Social Security recipients' benefits from being eroded by inflation.
Of course, inflation rates varied considerably from year to year. And so did the Social Security COLAs.
Data source: Social Security Administration. Chart by author.
As you can see from the above chart, the recently announced COLA truly is the biggest in more than 40 years. Inflation was relatively mild throughout much of the past three decades. There were even a few years when no COLA was given.
The above chart, though, doesn't make it easy to see exactly how the latest COLA ranks historically. The following chart showing the top 10 COLAs since 1975 should help.
Data source: Social Security Administration. Chart by author.
The Social Security increase announced last week is the fourth-largest since automatic annual COLAs were implemented. The biggest COLA since 1975 came in 1980 and was 14.3%. Inflation also soared in the following and previous years, with COLAs of 11.2% and 9.9%, respectively.
You might have noticed that the chart actually shows 11 years in the top 10. That's because a 5.9% COLA was given in both 1977 and 2021.
But there's more
Technically, though, the 8.7% Social Security increase that's on the way isn't the fourth-largest ever. While automatic annual COLAs went into effect in 1975, Social Security benefits had been increased before then to help address the effect of inflation.
Those earlier adjustments literally took an act of Congress. Before 1975, legislative action was required to change Social Security benefits. However, Congress did act. Between 1950 and 1974, Social Security benefits were increased 11 times. This includes two separate increases in 1974.
So how does the recently announced Social Security COLA stack up historically when these legislative cost-of-living increases are included? You might be surprised at how generous politicians in Washington D.C. were. The chart below shows the top 12 Social Security increases of all time, including those implemented by special legislation and automatic COLAs.
Data source: Social Security Administration. Chart by author.
The upcoming Social Security COLA drops down to No. 12 with the increases from before 1975 included. The very first Social Security benefits increase was given in 1950 and was a whopping 77%. Congress was making up for years that beneficiaries went without any adjustments to help offset inflation. Only double-digit increases made the top 10 with the earlier Social Security adjustments included.
Whatever the ranking, it's big
Depending on how you look at it, the COLA announced last week ranks either No. 4 or No. 12 historically. Whatever the ranking is, though, Social Security recipients will get a big raise.
However, the 8.7% increase that's on the way is both good and bad. The Social Security COLA will certainly help prevent the erosion of benefits by inflation to some extent. But it's still quite possible that the buying power of Social Security benefits will decline, because consumer prices are continuing to rise. Perhaps the key lesson to learn from history is that Social Security COLAs are only partially effective at achieving their purpose.
