Order Code 94-803 EPW
Updated October 16, 2008
Social Security: The Cost-of-Living
Adjustment in January 2009
Gary Sidor
Information Research Specialist
Knowledge Services Group
Summary
To compensate for the effects of inflation, Social Security recipients receive a cost-
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of-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
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CPI-W for the third calendar quarter of the previous year to the third calendar quarter
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of the current year. The COLA becomes effective in December of the current year and
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is payable in January of the following year (Social Security payments always reflect the
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benefits due for the preceding month).
The 5.8% COLA payable in January 2009 was triggered by the rise in the CPI-W
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from the third quarter of 2007 to the third quarter of 2008. This COLA triggers identical
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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 5.8% COLA in January 2009. 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 payments
always reflect the benefits due for the preceding month).

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The January 2009 COLA
The amount of the January 2009 COLA became known on October 16, 2008, when
the BLS announced the September 2008 CPI-W figure. The release of the September
2008 index amount made the comparison of the two July-September sets of CPI-W
figures needed to compute the COLA (one for 2007 and another for 2008) possible.
Table 1 shows how the January 2009 COLA is computed under procedures set forth in
Section 215(I) of the Social Security Act.
Table 1. Computation of the Social Security COLA, January 2009
CPI-W Index Points
July 2007
203.700
August 2007
203.199
September 2007
203.889
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Average for Third Quarter of 2007 (rounded to the nearest
203.596
one-thousandth of 1%):
July 2008
216.304
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August 2008
215.247
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September 2008
214.935
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Average for Third Quarter of 2008 (rounded to the nearest
215.495
one-thousandth of 1%):
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Percentage increase from the third quarter average for 2007
215.495 - 203.596 = 11.889
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to the third quarter average for 2008 (rounded to the nearest
one-thousandth of 1% for initial calculations, but rounded to
11.889 / 203.596 = 5.844%
the nearest one-tenth of 1% for the final application, as
required by law):
COLA = 5.8%
Source: BLS data series for the CPI-W for 2007 and 2008.
Note: The reference base period for the CPI-W is 1982-1984 (i.e., the period when the index equaled
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 an 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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Their recipients also receive a 5.8% COLA in January 2009.1 The COLA also triggers
other changes in the Social Security program, including the following items indexed to
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 $106,800 in 2009 (from $102,000 in 2008).
! Exempt Amounts Under the Social Security Earnings Test. The exempt
amount under the earnings test 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 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
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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
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$1 of benefits for every $3 of earnings above this exempt amount.
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Although not triggered by the COLA, other changes are tied to the increase in
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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
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the amount for the blind disabled is $1,640 (up from $1,570 in 2008). The annual
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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 2009 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
Amount of Increase
Date Increase Was Paid
(shown as a percentage)
January 2009
5.8
January 2008
2.3
January 2007
3.3
January 2006
4.1
January 2005
2.7
January 2004
2.1
January 2003
1.4
January 2002
2.6
January 2001
3.5
January 2000
2.5a
January 1999
1.3
January 1998
2.1
January 1997
2.9
January 1996
2.6
January 1995
2.8
January 1994
2.6
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January 1993
3.0
January 1992
3.7
January 1991
5.4
January 1990
4.7
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January 1989
4.0
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January 1988
4.2
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January 1987
1.3
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January 1986
3.1
January 1985
3.5
January 1984
3.5
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July 1982
7.4
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July 1981
11.2
July 1980
14.3
July 1979
9.9
July 1978
6.5
July 1977
5.9
July 1976
6.4
July 1975b
8.0
April/July 1974c
11.0
October 1972
20.0
February 1971
10.0
February 1970
15.0
March 1968
13.0
February 1965
7.0
February 1959
7.0
October 1954
13.0
October 1952
12.5
October 1950
77.0
Source: Social Security Administration.
a. Originally computed as 2.4%, the COLA payable in 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
Taxable Earnings Base
Year Effective
OASDI
HI
2009
$106,800
All earnings
2008
102,000
All earnings
2007
97,500
All earnings
2006
94,200
All earnings
2005
90,000
All earnings
2004
87,900
All earnings
2003
87,000
All earnings
2002
84,900
All earnings
2001
80,400
All earnings
2000
76,200
All earnings
1999
72,600
All earnings
1998
68,400
All earnings
1997
65,400
All earnings
1996
62,700
All earnings
1995
61,200
All earnings
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1994a
60,600
All earnings
1993
57,600
$135,000
1992
55,500
130,200
1991b
53,400
125,000
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1990
51,300
51,300
1989
48,000
48,000
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1988
45,000
45,000
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1987
43,800
43,800
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1986
42,000
42,000
1985
39,600
39,600
1984
37,800
37,800
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1983
35,700
35,700
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1982
32,400
32,400
1981
29,700
29,700
1980
25,900
25,900
1979
22,900
22,900
1978
17,700
17,700
1977
16,500
16,500
1976
15,300
15,300
1975
14,100
14,100
1974
13,200
13,200
1973
10,800
10,800
1972
9,000
9,000
1968-1971
7,800
7,800
1966-1967c
6,600
6,600
1959-1965
4,800
—
1955-1958
4,200
—
1951-1954
3,600
—
1937-1950
3,000
—
Source: Social Security Administration.
a. The HI taxable earnings base was eliminated by the Omnibus Budget Reconciliation Act of
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.
c. 1966 was the first year in which the HI tax was levied.

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Table 4. Impact of January 2009 COLA on
Monthly Benefit Levels
Before
After
5.8% COLA
5.8% COLA
Average Social Security monthly benefit levels:
All retired workers
$1,090
$1,153
Aged couple, both receiving benefits
$1,773
$1,876
Widowed mother and two children
$2,268
$2,399
Aged widow(er) alone
$1,051
$1,112
All disabled workers
$1,006
$1,064
Disabled worker, spouse, and one or
more children
$1,695
$1,793
SSI federal monthly payment standard:
Individual
$637
$674
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Couple
$956
$1,011
Source: Social Security Administration, October 16, 2008.
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