Unlike the protection provided by Social Security benefits, many pensions do not include any cost-of-living adjustment (COLA) provision. For these, your starting pension amount is your final pension amount, even if you receive the pension for many years. What about yours?
One of the many valuable aspects of Social Security benefits, the annual, automatic review of Social Security amounts for a possible cost-of-living adjustment (COLA) is now such an accepted feature of the program that it is difficult to imagine a time when there were no COLAs. However, such a time existed.
Social Security beneficiaries did not originally receive cost-of-living adjustments. In fact, automatic COLAs had not yet begun when I started working for the Social Security Administration.
The first automatic COLA’s began in 1975, based on 1972 legislation. Before then, benefits increased only when Congress enacted special legislation for the purpose. Although the first SSA benefit was paid in January 1940, the first COLA increase was received in October 1950 followed by a second in 1952. Part of the 1950 Amendments, the first Social Security COLA was signed into law by President Truman.
Signed into law by President Nixon, the 1972 legislation provided for a special COLA effective September 1972 and, beginning in 1975, established the procedures for issuing automatic COLA’s based on the annual increase in the consumer price index, if any.
Using Department of Labor data, Social Security and Supplemental Security Income (SSI) COLAs are based on the percentage of increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year. If there is no increase in the CPI-W Consumer Price Index, there can be no COLA.
Since 1975, the automatic cost-of-living adjustment has increased Social Security benefits in every year except 2010 and 2011. Learn COLA percentages for 1975-2014 here.