Social Security COLA, how is it calculated and what is the possible COLA for 2012

For most people the Social Security cost of living adjustment is a mystery. The most important thing is will there be an increase. Following is a somewhat simple explanation of the calculation mostly copied from the Social Security website.

What is a COLA?

Legislation enacted in 1973 provides for cost-of-living adjustments, or COLAs. With COLAs, Social Security and Supplemental Security Income (SSI) benefits keep pace with inflation.

How is a COLA calculated?

The Social Security Act specifies a formula for determining each COLA. According to the formula, COLAs are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-Ws are calculated on a monthly basis by the Bureau of Labor Statistics.

A COLA effective for December of the current year is equal to the percentage increase (if any) in the average CPI-W for the third quarter of the current year over the average for the third quarter of the last year in which a COLA became effective. If there is an increase, it must be rounded to the nearest tenth of one percent. If there is no increase, or if the rounded increase is zero, there is no COLA.

COLA Computation

The last year in which a COLA became effective was 2008. Therefore the law requires that we use the average CPI-W for the third quarter of 2008 as the base from which we measure the increase (if any) in the average CPI-W. The base average is 215.495.

The average CPI-W for the third quarter of 2010 was 214.136. Therefore, because there was no increase in the CPI-W from the third quarter of 2008 through the third quarter of 2010, there was no COLA for December 2010.

So what about 2012, will there be a COLA? We are still using the average for the third quarter of 2008 as the base.

In May 2011 the index was 222.954. If we assume the CPI-W stays at that level for July, August and September we have an average of 222.954 versus 2008 third quarter average 215.495 for a difference of 7.459 or a percent increase of 3.461 which could mean a Social Security COLA increase of 3.5%.

Of course we are making a major assumption regarding the CPI-W for the third quarter of 2011 and nobody knows today what it will be. Only time will tell the actual amount of the Social Security COLA for 2012, if any.

40 comments

  1. Regarding the wealthy paying more taxes: The limit of FICA for the wealth should be increased because their Social Security FICA does not represent what they will receive. Some comments regarding not increasing taxes to the wealthy because they were successful and earned their wealth is ridiculous. Many wealthy today inherited their wealth for example the Koch brothers, Donald Trump. The fact is there is today a huge number of young under educated billionaires that inherited their wealth. The middle class of the 20th century no longer exists because the wealthy are allowed to make huge campaign contributions which gives them tremendous control of our government. Your vote may get the candidate of your choice in office, but that candidate does not represent you or I, they represent and are directed by the large campaign contributors. I am greatly troubled by the reduction in wages of workers of today. The 1st step in changing that is putting a stop to campaign contributions from Corporations and billionaires.

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    1. No the first step is getting integrity from politicians or term limits. Regardless of how wealth is accumulatec tell me how such wealth harms the middle class. What control over government affects the middle class goven the hundreds if not thousands of government programs of one kind of assistance or another?

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  2. what happened to the increase of taxing the wealthy, i beleive that it would help society from getting screwed. obama should take care of social security cola to help people with the inflation costs, cant say inflation didnt go up.

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    1. You are going to get a COLA on your Social Security benefit in December, but what has taxing the wealthy got to do with your Social Security benefits? How does the success of others, take from you?

      Seniors are not alone dealing with inflation, many young working families have not received a raise in three to four years either and unlike seniors they have no law guaranteeing them a raise as inflation increases.

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  3. The formula for determining the Social Security benefit’s COLA is not complex. But all the ssa.gov website will do is tell one that “the formula” uses the 3Q as a base, to be used with the current 3Q. Your site is the only one I’ve seen that actually shows “the formula” applied.

    Thank you!

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  4. Read! Google Obama and social security COLA. Google Obama and 2012 social security budget. Also read the new formula for inflation that he wants to use for social security which will keep the COLA very small every year. I supported Obama completely. Even campaigned for him. I am shocked at what he is doing regarding social security. But you need to research this and read.

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    1. The current formula for COLA uses the CPI-W and this measure is not an accurate reflection of how seniors spend money or adjust to inflation on certain goods and services. Adjusting that formula for future COLAs is both appropriate and a relatively painless way to help Social Security remain at least closer to solvent. The change in monthly benefit if a new formula is used is very modest.

      Millions of young working families in this country haven’t seen a raise in pay in several years and are affected by inflation just like us seniors even more so when it comes to health care, college costs, etc.

      Where is it ordained that just because you are 65+ you deserve more and more at the expense of the following generation? We had our entire working lives to plan for retirement, shame on us if we didn’t get it right.

      You may want to read more of the posts on this blog regarding both Social Security and Medicare.

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      1. There is a difference between seniors and young working people. Young working people can take a second job, retrain for a better job, etc. We cannot do this. We cannot better our situations through upgrading skills or any other way. The formula now being considered at Obama’s request will result in almost no COLA increases. Federal workers would not tolerate no COLA every year, including our elected officials in Washington. We, the seniors, are still paying taxes so they can have their increases. We have to pay our property taxes, our sales taxes, etc. We are still contributing. Do not say we do not deserve a small increase every year to keep up with inflation.

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      2. There are many things most seniors can do. But that is not the issue. Today’s seniors had forty or more working years to plan for and prepare for older age and reduced income. The state of ones income in retirement should not come as a shock to anyone.

        The talked about change in COLA formula is in fact a relatively modest reduction in future COLAs. The facts are shown in a blog post on this blog. Don’t listen to what you hear, look at the numbers.

        Dick

        Richard D Quinn Editor Quinnscommentary.com

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      3. because,I worked 40 years straight and payed in very high social security taxes,if the younger genaration is paying for our ss, who in the crap did I pay for for 40 years. So yes I deserve my social security check.if you did not work, then you don’t deserve it, it all these welfare people having babies and are to LAZY””” to work geting free money, our money, free heat and electric free housing free dental free medical, “thats the Problem” they sould be forced to go to work,I get very angry when someone says “I don’t deserve my social security.

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      4. “…if the younger genaration is paying for our ss, who in the crap did I pay for for 40 years. ”

        A good question. As the Social Security Administration explains at
        http://www.ssa.gov/history/BudgetTreatment.html
        “In early 1968 President Lyndon Johnson made a change in the budget presentation by including Social Security and all other trust funds in a ‘unified budget.’ ”

        This means that the government got to spend all of your tax contributions over and above what was needed to pay for then-current beneficiaries for whatever it wanted, just leaving an IOU in the SSA trust fund.

        This was a grand scheme to raise current revenues needed to handle the war in Vietnam and the war on poverty under the guise of “fixing” social security. As long as the taxes collected in the name of social security exceeded the amounts paid out as social security benefits, the scheme worked fine. Now that the input collected won’t cover the payments the government needs to “fix” it again.

        Perhaps there is a post office or bridge near your house with your congressman’s name on it? It should really be named the Carnell-Sawyer-Quinn… Bridge. We paid for at least part of it with our FICA deductions.

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      5. You are right, we paid into social security like an insurance program and we were promised we were contributing to get it back for our retirement. I am tired of social security being called an “entitlement” as if we are expecting something for nothing.

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      6. Actually we paid into Social Security like a Ponzi scheme. As structured, Social Security depends on new investors (tax payers) to pay current beneficiaries. As those taxpayers become fewer in relationship to those collecting benefits the problem becomes worse and eventually the system will collapse.

        As far as getting back what you put in that’s not an issue. At sixty five life expectancy is about 18 years and yet a Social Security beneficiary will get back her contributions in less than seven years.

        Dick

        Richard D Quinn Editor Quinnscommentary.com

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      7. 100% of the SS taxes paid by working people are going to pay the benefits for those of us now collecting a monthly check. In the past our taxes paid the previous generations benefits AND a surplus was used to buy special treasury bonds. That is no longer true because the benefits exceed the tax revenue and now to pay benefits the interest on the bonds must be used. In 25 years taxes and interest combined will not be sufficient to pay promised benefits.

        You may be entitled because the law says so and because you paid what was expected of you, but the promise was unrealistic and now younger people will be paying more and/or future benefits will be trimmed in some manner.

        Government promises are great, but politicians don’t tell people what it takes to keep those promises.

        Dick

        Richard D Quinn Editor Quinnscommentary.com

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  5. The 3.5% is the law. The 0.9% and 1.2% number are budget estimates made up by politicians to make the debt problems not look so bad. Journalists no longer do real work and challenge this stuff. That is why, when you see the 3.5% actual increase reported next month, it is going to be described as “unexpected!”

    In May, the Minneapolis Star-Tribune published a report that included a 0.7% forecast for the increase. I had just calculated the likely rate the day before and posted about it on my blog:
    http://figuresdontlie.blogspot.com/2011/05/government-forecasts-decrease-in.html

    As you say, “We can only wait and see.” But then we will know who to trust – journalists and government or those crazy bloggers on the Internet. Just thirty days until we find out!

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  6. I hope you are right. However, everything I’ve read says that social security wants to give a 1.2% and Obama budgeted a 0.9% COLA. 3.5% sounds wonderful, especially after 2 years without. We can only wait and see. But, if the increase is 0.9%, you know where it came from. Just the fact that it’s all he wants us to have is enough to make me feel differently about him than I did. I was a supporter, but two years without a COLA and now he wants us to have a 0.9% increase when it is obvious the cost of living has risen dramatically is really throwing us seniors under the bus. We have to wait and see.

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    1. YES ROSE, WHILE HE ENJOYS ALL THE LAVISH MEALS, SERVANTS, CLOTHES – LIVING LIKE KING AND QUEENS AND DON’T FORGET PRINCESSES – OFF OF THE AMERICAN PEOPLE’S BACKS – HE HAS LOST MY VOTE – THANKS FOR THE CRUMB – I NEED THEM –

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      1. I was a supporter of Obama and am very shocked at how much he had me fooled. He simply does not care. Once I realized that I can’t even listen to his speeches. They are empty words creating an illusion of caring for the people.

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  7. Sorry, but O’bummer can’t veto it! He could only veto a proposed new law. The law providing for Cost Of Living Increases (COLAs) was signed into law by President Nixon while he was on vacation in San Clemente on July 9th of 1972. See this lovely portrait of Nixon, courtesy of the Social Security Administration at:
    http://www.ssa.gov/history/Nixon72.html

    The president has to follow all existing laws. If he doesn’t, he will be impeached (See Clinton) or threatened with impeachment and have to resign – see photo of Nixon referenced previously.

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  8. I wish we would get a 3.5% increase in January 2012. But I repeat, Obama has already told social security that he will only approve a 0.9% increase. That is what he has budgeted. He can, and I believe he will, veto anything higher. Notice too that he just extended the payroll social security tax decrease for working people. Doesn’t sound like he wants to shore up social security!

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  9. R D

    You are so right! With two of the three months data now in, we are looking at a 3.5% increase!

    Just one more month until the newspapers and television reports that the “unexpected” increase in Social Security benefits wreaks havoc with federal budget projections! I can hardly stand the suspense as I wait for it.

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  10. I hope you’re right, but in addition to seeing the budget appropriation in Obama’s 2012 budget for social security, I have read a few times that he has told social security that the COLA must be 0.09%. The president can override budget items. I really hope he doesn’t get his way, but just the fact that he is trying to upsets me and it should upset all seniors.

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  11. Just google Obama’s social security budget 2012. You will see the 0.09% COLA appropriation. I also read that he told social security they could not have the 1.2% COLA they were considering. Google; you will see.

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    1. Sorry you are misinterpreting what you are reading. Nobody considers the COLA. It is fixed by law and unless Congress amends the law, the amount if the COLA is fixed by formula and has nothing to do with the president or any budget. Read my blog post about how this works. Right now the projected increase is about 3.5 % and the only way that will go down is if inflation for August and Septembet is lower than July.

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  12. We will not get a raise for 2012. Most of the members of the board that determines how much, or if, we get for a cola was appointed by Obama. Obama does not consider Senior citizens as a viable avenue to spend “his” money and allow his pet projects, welfare increases, medicaid increases, food stamp increases, and unemployment extensions. More people in this category will vote for him. Seniors for the most part are set in their ways and nothing he will do will change their vote. AARP is not a forum or representative of 85% of seniors. In fact, if you don’t have large investments or high retirement income they don’t want you except for their membership fee. They do have a respectable life insurance program, other than that, nothing but predujice against everyone and the desire to put “tokens” in as many political offices as possible.

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    1. Whether or not there is a COLA is fixed by the formula in the law and has nothing to do with who is member of the board of trustees.

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      1. I have read Obama’s social security budget for 2012. He is only allowing 0.09% for the 2012 COLA. The social security adminstration had suggested 1.2%, but Obama said no to that and appropriated 0.09%. So do not get your hopes up. I have repeatedly read that Obama will allow no more than what he has budgeted. I voted for and supported Obama. I am deeply disappointed at the way he has been treating seniors. All of his promises to us to help us live with dignity have been broken; on the contrary, he has made it harder for us than any preceding president. I hope everyone remembers this on election day.

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    1. There is no such budget and no President has anything to do with the raise for Social Security. The formula is all fixed by law and is determined by inflation rates. Obama can’t stop or change any increase even if he wanted to. You should not have voted for him, but this is not the reason. Remember, he wanted to give seniors $250 even when the law did not call for a SS COLA.

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      1. doesn’t anybody read or understand what you are saying? Everyone wants to blame everything wrong in their lives on Obama..doesn’t matter if you voted or didn’t vote for him – whether you like him or not – YOU ARE ABSOLUTELY CORRECT – Obama is not in this picture – thanks for your CORRECT input!

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      2. Based on the comments I receive it depresses me how much people do not understand or don’t take the time to learn the facts. I am especially shocked at the forwarding of ridicules e-mails that people simply accept as fact.

        Dick

        Richard D Quinn Editor Quinnscommentary.com

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