What is a COLA and will there be a COLA in 2021?

Pamela Kweller RSSA Staff


What is a COLA?

COLA stands for Cost of Living Adjustment. As part of the 1950 Amendments, the first COLA was introduced to keep pace with inflation. These increases were originally set by legislation. In 1972 it was signed into law that starting in 1975 COLAs would become automatic as a way to keep benefits up with increases in standard of living. Since 1975, Social Security benefits have had an automatic annual increase known as COLA.

Every year, the Social Security Administration uses various calculations and formulas to calculate specific amounts known as Automatic Determinations. Some annual Automatic Determinations include Quarter of Coverage, Earnings Test Exempt Amounts, Maximum Family Benefit Bend Points, COLA, and more. These Automatic Determinations are published in the Federal Register each October.

Since 1975, COLAs have been based on the changes in the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers). Since 1983, COLAs have been based on the increase in the CPI-W in the third quarter of the current year compared to the increase in the CPI-W in the third quarter of the previous year.

Historically, the average COLA has been 2.8%. However for the decade preceding 2019, the average COLA was 1.4%. During that decade, there were three years that had a 0% COLA. Those years were 2009, 2010, and 2015. The 2020 COLA was 1.6%.

Will there be a COLA in 2021?

We don’t know, yet.

As the COVID-19 pandemic hit our country, the beginning projections for the 2021 COLA were not looking good. It was rumored that 2021 would be one of those years with a 0% COLA. However, our economy has changed a lot over the last few months and there is still a possibility for a COLA. Remember, the third quarter includes July, August, and September so there is still time.

We can hope and wish all we want, but the 2021 COLA will not be finalized until October 2020. With that said, we will keep you updated!


Automatic Determinations In Recent Years
COLA Information