Order Code 94-803 EPW
Updated October 18, 2005
CRS Report for Congress
Received through the CRS Web16, 2008
Social Security: The Cost-of-Living
Adjustment in January 20062009
Gary Sidor
Knowledge Services GroupInformation Research Specialist
Knowledge Services Group
http://wikileaks.org/wiki/CRS-94-803
Summary
To compensate for the effects of inflation, Social Security recipients receive a costof-living adjustment (COLA) in January of each year. The Consumer Price Index for
Urban Wage Earners and Clerical Workers (CPI-W), updated monthly by the
Department of Labor’s Bureau of Labor Statistics (BLS), is the measure used to compute
the change. The Social Security COLA is based on the percentage change in the average
CPI-W for the third calendar quarter of the previous year to the third calendar quarter
of the current year. The COLA becomes effective in December of the current year and
is payable in January of the following year (Social Security checkspayments always reflect the
benefits due for the preceding month).
The 4.15.8% COLA payable in January 20062009 was triggered by the rise in the CPI-W
from the third quarter of 20042007 to the third quarter of 20052008. This COLA triggers identical
percentage increases in Supplemental Security Income (SSI), veterans’ pensions, and
railroad retirement benefits, and causes other changes in the Social Security program.
Although COLAs under the federal Civil Service Retirement System (CSRS) and the
federal military retirement program are not triggered by the Social Security COLA, these
programs use the same measuring period and formula for computing their COLAs.
Their recipients will also receive a 4.15.8% COLA in January 20062009. This report is updated
annually.
How the Social Security COLA Is Determined
An automatic Social Security benefit increase reflects the rise in the cost of living
over roughly a one-year period. The CPI-W, updated monthly by the BLS, is the measure
used to compute the change. The Social Security COLA is based on the percentage
change in the average CPI-W for the third calendar quarter of the previous year to the
third calendar quarter of the current year. The COLA becomes effective in December of
the current year and is payable in January of the following year (Social Security checkspayments
always reflect the benefits due for the preceding month).
Congressional Research Service ˜ The Library of Congress
CRS-2
The January 20062009 COLA
The amount of the January 20062009 COLA became known on October 14, 200516, 2008, when
the BLS
announced the September 20052008 CPI-W figure. WithThe release of the September 2005 index,
2008 index amount made the comparison of the two July-September sets of CPI-W
figures needed to compute the COLA (one for
2004 2007 and another for 2005) became available. 2008) possible.
Table 1 shows how the January 2006
2009 COLA is computed under procedures set forth in
Section 215(iI) of the Social Security
Act.
Table 1. Computation of the Social Security COLA, January 2006
CPI-W Index Points
July 2004
184.9
August 2004
185.0
September 2004
185.42009
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CPI-W Index Points
July 2007
203.700
August 2007
203.199
September 2007
203.889
Average for Third Quarter of 20042007 (rounded to the
nearest one-tenth of 1%):
185.1
July 2005
191.0
August 2005
192.1
September 2005
195.0 nearest
one-thousandth of 1%):
203.596
July 2008
216.304
August 2008
215.247
September 2008
214.935
Average for Third Quarter of 20052008 (rounded to the
nearest one-tenth of 1%):
192.7 nearest
one-thousandth of 1%):
215.495
Percentage increase from the third quarter average for
2004 2007
to the third quarter average for 2005 (rounded to
the nearest one-tenth of 1% as required by law):
192.7 - 185.1 = 7.6
7.6 / 185.1 = 4.106%
COLA = 4.12008 (rounded to the nearest
one-thousandth of 1% for initial calculations, but rounded to
the nearest one-tenth of 1% for the final application, as
required by law):
215.495 - 203.596 = 11.889
11.889 / 203.596 = 5.844%
COLA = 5.8%
Source: BLS data series for the CPI-W for 20042007 and 20052008.
Note: The reference base period for the CPI-W is 1982-1984, (i.e., the period when the index equaled 100
100).
What Else Is Affected Besides Social Security Benefits?
Social Security COLAs trigger increases in other programs. SSI benefits, veterans’
pension benefits, and railroad retirement “tier 1” benefits (equivalent to a Social Security
benefit) are increased by the same percentage as the Social Security COLA. Railroad
retirement “tier 2” benefits (equivalent to a private pension) are increased by 32.5% of the
percentage increase applicable to “tier 1” COLAsan amount
equivalent to 32.5% of the Social Security COLA. Although COLAs under the CSRS and
the federal military retirement system are not triggered by the Social Security COLA,
these programs use the same measuring period and formula for computing their COLAs.
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http://wikileaks.org/wiki/CRS-94-803
Their recipients also receive a 4.15.8% COLA in January 20062009.1 The COLA also triggers
other changes in the Social Security program, including the following items indexed to the
the increase in national average wages:
!
!
Taxable Earnings Base. The Social Security (or Old-Age, Survivors, and
Disability Insurance — OASDI) taxable earnings base (the maximum
amount of annual earnings subject to Social Security payroll taxes) will increase
to $94,200 in 2006 (from $90,000 in 2005).
increase to $106,800 in 2009 (from $102,000 in 2008).
!
Exempt Amounts Under the Social Security Earnings Test. The exempt
amount under the earnings test (the maximum annual amount a Social
Security recipient can earn from work and still receive full benefits) will
rise to $12,480 in 2006 (up from $12,000 in 2005) for persons who are
is the maximum amount of earnings
allowed before a Social Security recipient’s benefits are affected. In
2009, for persons who are below the full retirement age (FRA) and will not reach the FRA during
2006. For those born prior to 1937, the FRA is 65 years. Under the
Senior Citizens’ Freedom to Work Act (P.L. 106-182), effective January
1, 2000, the earnings test no longer applies to recipients beginning in the
month they reach the FRA. During the calendar year in which a recipient
will reach the FRA, an annual exempt amount still applies for months
preceding the attainment of the FRA. For those born in 1941 and turning
65 at some point in 2006, the FRA is not reached until 65 years and eight
months. According to law, the FRA will gradually increase to eventually
reach 66 years for those born between 1943 and 1954, and 67 years for
those born after 1959. The ages at which the earnings test applies will
increase accordingly. Under the law, the exempt amount will be $33,240
($2,770 per month) in 2006 (up from $31,800, or $2,650 per month, in
2005), and will continue to rise in proportion to the increase in national
average wages.
Although not triggered by COLAs, other changes are tied to the increase in national
average wages. In 2006, the amount of earnings needed for a Social Security “quarter-ofcoverage” is $970 (up from $920 in 2005). The annual coverage thresholds for domestic
workers and election workers each increase by $100 in 2006, to $1,500 and $1,300,
respectively. The monthly substantial gainful activity amount for the non-blind disabled
is $860 (up from $830 in 2005), and the amount for the blind disabled is $1,450 (up from
$1,380 in 2005).
not reach the FRA during that year, the annual exempt amount is $14,160
(up from $13,560 in 2008). There is a withholding of $1 of benefits for
every $2 of earnings above this exempt amount. The earnings test no
longer applies beginning with the month a recipient reaches the FRA.
During the calendar year in which a recipient reaches the FRA, a higher
exempt amount applies for those months preceding the individual’s
attainment of the FRA. In 2009, for persons who will reach the FRA in
that year, the annual exempt amount is $37,680, or $3,140 per month (up
from $36,120, or $3,010 per month, in 2008). There is a withholding of
$1 of benefits for every $3 of earnings above this exempt amount.
Although not triggered by the COLA, other changes are tied to the increase in
national average wages. In 2009, the amount of earnings needed for a Social Security
“quarter-of-coverage” is $1,090 (up from $1,050 in 2008). The monthly substantial
gainful activity amount for the non-blind disabled is $980 (up from $940 in 2008), and
the amount for the blind disabled is $1,640 (up from $1,570 in 2008). The annual
coverage thresholds for domestic workers and election workers increase by $100 from
2008 levels, to $1,700 and $1,500, respectively.
Tables 2 and 3 show the history of increases in Social Security benefits and the
taxable earnings base. Table 4 shows the effect of the January 20062009 COLA on monthly
benefit levels.
1
For retirees under the Federal Employees’ Retirement System (FERS), a different formula is
applied and the resulting increases may differ.
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Table 2. History of Social Security Benefit Increases
Date
increase
was paid
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Date Increase Was Paid
January 2009
January 2008
January 2007
January 2006
January 2005
January 2004
January 2003
January 2002
January 2001
January 2000
January 1999
January 1998
January 1997
January 1996
January 1995
January 1994
January 1993
January 1992
January 1991
January 1990
January 1989
January 1988
January 1987
January 1986
January 1985
January 1984
July 1982
July 1981
July 1980
July 1979
July 1978
July 1977
July 1976
July 1975 b1975b
April/July 1974 c1974c
October 1972
February 1971
February 1970
March 1968
February 1965
February 1959
October 1954
October 1952
October 1950
Amount of Increase
Amount
of increase
(shown as a percentage)
5.8
2.3
3.3
4.14.1%
2.7
2.1
1.4
2.6
3.5
2.5a
1.3
2.1
2.9
2.6
2.8
2.6
3.0
3.7
5.4
4.7
4.0
4.2
1.3
3.1
3.5
3.5
7.4
11.2
14.3
9.9
6.5
5.9
6.4
8.0
11.0
20.0
10.0
15.0
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Date
increase
was paid
Amount
of increase
(shown as a percentage)
March 1968
February 1965
February 1959
October 1954
October 1952
October 1950
13.0
7.0
7.0
13.0
12.5
77.0
Source: Social Security Administration.
a. Originally computed as 2.4%, the COLA payable in Jan.January 2000 was
corrected to 2.5% under P.L. 106-554.
b. Automatic COLAs began.
c. Increase came in two steps.
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Table 3. Social Security and Medicare Hospital Insurance Taxable
Earnings Bases Since the Beginning of the Programs
Year Effective
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Year Effective
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994a
1993
1992
1991a1991b
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
Taxable Earnings Base
OASDI
HI
$94,200
90,000
87,900
87,000
84,900
80,400
76,200
72,600
68,400
65,400
62,700
61,200
60,600
57,600
55,500
53,400
51,300
48,000
45,000
43,800
42,000
39,600
37,800
35,700
32,400
29,700
25,900
All earnings
All earnings
All earnings
All earnings
All earnings
All earnings
All earnings
All earnings
All earnings
All earnings
All earnings
All earnings
All earnings
$135,000
130,200
125,000
51,300
48,000
45,000
43,800
42,000
39,600
37,800
35,700
32,400
29,700
25,900
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Year Effective
Taxable Earnings Base
OASDI
HI
1979
1978
1977
1976
1975
1974
1973
1972
1968-1971
1966-1967b
1959-1965
1955-1958
1951-1954
1937-1950
22,900
17,700
16,500
15,300
14,100
13,200
10,800
9,000
7,800
6,600
4,800
4,200
3,600
3,000
22,900
17,700
16,500
15,300
14,100
13,200
10,800
9,000
7,800
6,600
—
—
—
1979
1978
1977
1976
1975
1974
1973
1972
1968-1971
1966-1967c
1959-1965
1955-1958
1951-1954
1937-1950
Taxable Earnings Base
OASDI
HI
$106,800
All earnings
102,000
All earnings
97,500
All earnings
94,200
All earnings
90,000
All earnings
87,900
All earnings
87,000
All earnings
84,900
All earnings
80,400
All earnings
76,200
All earnings
72,600
All earnings
68,400
All earnings
65,400
All earnings
62,700
All earnings
61,200
All earnings
60,600
All earnings
57,600
$135,000
55,500
130,200
53,400
125,000
51,300
51,300
48,000
48,000
45,000
45,000
43,800
43,800
42,000
42,000
39,600
39,600
37,800
37,800
35,700
35,700
32,400
32,400
29,700
29,700
25,900
25,900
22,900
22,900
17,700
17,700
16,500
16,500
15,300
15,300
14,100
14,100
13,200
13,200
10,800
10,800
9,000
9,000
7,800
7,800
6,600
6,600
4,800
—
4,200
—
3,600
—
3,000
—
Source: Social Security Administration.
a. The HI taxable earnings base was eliminated by the Omnibus Budget Reconciliation Act of 1993. In
1991, it
1993.
b. The HI taxable earnings base was raised to $125,000 as a revenue-raising measure in the
Omnibus Budget Reconciliation Act
of 1990.
bc. 1966 was the first year in which the HI tax was levied.
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Table 4. Impact of January 20062009 COLA on
Monthly Benefit Levels
Before
4.15.8% COLA
After
4.1% COLA
Average Social Security monthly benefit levels:
5.8% COLA
All retired workers
$9631,090
$1,002153
Aged couple, both receiving benefits
$1,583773
$1,648876
Widowed mother and two children
$1,9922,268
$2,074399
Aged widow(er) alone
$929
$967
All disabled workers
$902
$939
$1,509
$1,571
Individual
$579
$603
Couple
$869
$904
Disabled worker, spouse, and one or
more children
1,051
$1,112
All disabled workers
$1,006
$1,064
Disabled worker, spouse, and one or
more children
$1,695
$1,793
Individual
$637
$674
Couple
$956
$1,011
Average Social Security monthly benefit levels:
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SSI federal monthly payment standard:
Source: Social Security Administration, Oct. 14, 2005October 16, 2008.