Prices won’t stagnate once you retire. Everything from takeout meals to groceries will continue to go up in price. That’s a problem if your income remains stagnant.

Fortunately, you’re likely to see at least a small Social Security increase every year, thanks to a program passed in 1973 called COLA, short for Cost-of-Living Adjustment. That means the government will assess inflation rates and give you an occasional raise, giving you a bump in your monthly pay to tackle all those increases. Like the past few years, in 2022, you’ll see a significant increase in that monthly check. Read on to find out exactly how much.

Cost-of-Living Adjustment (COLA) information for 2022

If you receive Social Security payments, you should already see a 5.9 percent increase in your benefits. The Social Security COLA 2022 increase kicked in with December’s benefits, so your first check of 2022 should be higher than previous months. You probably would have noticed it more than 2021’s 1.3 percent increase, which was down from 2020’s 1.6 percent increase.

To understand the 2022 Social Security increase, it can help to take a look at how it’s calculated. The Social Security Act mandates a formula to be used every year. It takes into account the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which the Bureau of Labor Statistics calculates on a monthly basis.

When you look at your cost of living raise as a Social Security recipient, you can track it back to the increase in CPI-W from one year to the next. This is based on third-quarter numbers, so 2022’s increase comes from the change in CPI-W from July through September of 2021 to the same time period in 2020. The average, rounded to the nearest 0.001, is compared to the previous year’s CPI-W for the same quarter, then shown as a percentage of increase or decrease.

History of Automatic Cost-Of-Living Adjustments (COLA)

In 1972, a cost-of-living adjustment was passed as part of a group of Social Security amendments. The COLA took effect in June 1975 and kept the June date until 1982, when it was moved to December. Prior to 1975, increases had to be submitted and approved as legislation. The adjustment made it automatic.

Things looked pretty promising in those early years. In fact, you’ll notice in the below table that the annual increases were 5 percent or better from 1975 to 1983, when they leveled down a bit. During the economic downturn a decade ago, there were two years when Social Security recipients saw no raise at all. Looking at recent years, 5.9 percent is notable. COLA increases of between 1 and 2 percent are typical.

If you want to know a little more about how your cost-of-living raise 2020 shook down, take a look at the history of COLA increases, as well as the maximum monthly payout amounts for each year, dating all the way back to 1975.

*Legislated increase.

It can also be useful to review how the Consumer Price Index has influenced COLA in recent years. Here’s a breakdown of the average CPI-W for third quarters dating back to 2007, as well as the adjustments Social Security recipients saw as a result. In 2009-2010 and 2015, the CPI-W dropped, and therefore there was no Social Security raise.

Next Steps

The 5.9% increase sounds great, but with prices going up, your money will have to go a little farther. Meet with a Certified Financial Planner® to discuss adjustments you can make that will help you save money without cutting into your lifestyle.