In an effort to keep up with inflation and to protect retirees’ spending power, Social Security benefits usually increase each year as living expenses increase. In mid-October the Social Security Administration announced the latest cost of living adjustment (COLA) is 1.6%, beginning with the December 2019 benefits, which are payable in January 2020. This amounts to an extra $24 per month for the average retired worker.

While you’ll likely see a COLA most years once you’re enrolled in Social Security, it’s important to remember that there’s always the potential for a year with an abnormally low COLA. For example, those receiving Social Security benefits saw only a 0.3% rise in 2017, while the COLA for 2016 was 0%, meaning benefits remained flat. To better protect yourself from a year with a low—or zero—COLA, consider reducing your reliance on Social Security or saving in a health savings account if you’re eligible.

How COLAs are Calculated 

If Social Security weren’t adjusted, recipients would come to find out that their checks bought fewer goods and services with each passing year. For example, the dollar’s value declined by about a third from 2000 to 2018. Without a COLA, someone who began collecting benefits in 2000 would only be able to buy about two-thirds as much with their benefits in 2018.

When the Social Security Administration calculates the annual COLA figure, they use the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-W looks at a basket of goods and services purchased for consumption, including:

  • Food and bevereages
  • Housing
  • Apparel
  • Transportation
  • Medical care
  • Recreation
  • Education and communication
  • Other goods and services (e.g., tobacco, personal services)

The COLA is calculated by comparing the average CPI-W for the third quarter of the current year to the same period last year. As shown in the table below, the average in 2019 was higher by 1.6% (rounded to the nearest one-tenth), resulting in the 1.6% COLA increase.


CPI-W for:















Source:Social Security Administration

Interestingly, as a retiree, the CPI-W is unlikely to be an accurate representation of how your spending habits change on a year-to-year basis. That’s because the CPI-W does a poor job reflecting how important health care costs are for retirees. So your expenses may be increasing at a much higher rate than what the CPI-W represents.

How COLA Affects Your Benefits

Even though the COLA was announced as 1.6%, that doesn’t translate to a direct 1.6% raise in your benefits. That’s because the COLA is applied to your primary insurance amount (PIA) which is then factored into the larger benefits formula. Calculating your PIA and your resulting benefit amounts can be complicated, but the SSA has calculators and worksheets to help you get an idea of what your benefit amount will be.

SSA will announce the next COLA in October 2020, at which time your PIA will be recalculated and you’ll see another change in your total benefit amount. If you have any questions about how these changes may have an impact on your financial plan, please contact your financial advisor.


The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual.

Brian Kuhn

Brian Kuhn

Vice President, Financial Advisor

CFP®, CLU®, Series 7 Securities Registration,1 Series 66 Advisory Registration† Brian has almost 20 years of experience in the financial services industry, focusing on retirement planning, investments and insurance protection for individuals of all asset levels. He also has a special interest in assisting individuals who work in the public sector. A passionate educator, Brian enjoys sharing his in-depth knowledge through TV appearances, public speaking...Read More