Social Security: The Cost-of-Living Adjustment in January 2009

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-
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
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).
The 5.8% COLA payable in January 2009 was triggered by the rise in the CPI-W
from the third quarter of 2007 to the third quarter of 2008. 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 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 2007203.700
August 2007203.199
September 2007203.889
Average for Third Quarter of 2007 (rounded to the nearest203.596
one-thousandth of 1%):
July 2008216.304
August 2008215.247
September 2008214.935
Average for Third Quarter of 2008 (rounded to the nearest215.495
one-thousandth of 1%):
Percentage increase from the third quarter average for 2007^{215.495 -}^{203.596 = 11.889}
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:^BL^S^dat^a^s^e^ri^es^f^o^{r t}^h^{e C}^P^I-^{W f}^o^{r 2007 an}^{d 2008.}
^No^te:^T^h^{e ref}^e^ren^{ce bas}^e^peri^{od f}^o^{r t}^h^{e C}^P^I-^{W i}^s^1982-^{1984 (i}^{.e., t}^h^{e peri}^{od w}^h^en^t^h^{e i}ⁿ^dex^equ^a^l^e^d
^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
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 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
^{Date I}ⁿ^creas^e^Was^Paid^Am^{ount of I}ⁿ^creas^e^(s^howⁿ^as^{a percentage)}
^Jan^u^a^ry²⁰⁰⁹^5.8
^Jan^u^a^ry²⁰⁰⁸^2.3
^Jan^u^a^ry²⁰⁰⁷^3.3
^Jan^u^a^ry²⁰⁰⁶^4.1
^Jan^u^a^ry²⁰⁰⁵^2.7
^Jan^u^a^ry²⁰⁰⁴^2.1
^Jan^u^a^ry²⁰⁰³^1.4
^Jan^u^a^ry²⁰⁰²^2.6
^Jan^u^a^ry²⁰⁰¹^3.5
^Jan^u^a^ry²⁰⁰⁰^2.5^a
^Jan^u^a^ry¹⁹⁹⁹^1.3
^Jan^u^a^ry¹⁹⁹⁸^2.1
^Jan^u^a^ry¹⁹⁹⁷^2.9
^Jan^u^a^ry¹⁹⁹⁶^2.6
^Jan^u^a^ry¹⁹⁹⁵^2.8
^Jan^u^a^ry¹⁹⁹⁴^2.6
^Jan^u^a^ry¹⁹⁹³^3.0
^Jan^u^a^ry¹⁹⁹²^3.7
^Jan^u^a^ry¹⁹⁹¹^5.4
^Jan^u^a^ry¹⁹⁹⁰^4.7
^Jan^u^a^ry¹⁹⁸⁹^4.0
^Jan^u^a^ry¹⁹⁸⁸^4.2
^Jan^u^a^ry¹⁹⁸⁷^1.3
^Jan^u^a^ry¹⁹⁸⁶^3.1
^Jan^u^a^ry¹⁹⁸⁵^3.5
^Jan^u^a^ry¹⁹⁸⁴^3.5
^Ju^l^y¹⁹⁸²^7.4
^Ju^l^y¹⁹⁸¹^11.2
^Ju^l^y¹⁹⁸⁰^14.3
^Ju^l^y¹⁹⁷⁹^9.9
^Ju^l^y¹⁹⁷⁸^6.5
^Ju^l^y¹⁹⁷⁷^5.9
^Ju^l^y¹⁹⁷⁶^6.4^b
^Ju^l^y¹⁹⁷⁵^8.0
^A^p^ril/J^u^l^y¹⁹⁷⁴^c^11.0
^O^c^t^{ober 1972}^20.0
^F^e^bru^a^ry¹⁹⁷¹^10.0
^F^e^bru^a^ry¹⁹⁷⁰^15.0
^March¹⁹⁶⁸^13.0
^F^e^bru^a^ry¹⁹⁶⁵^7.0
^F^e^bru^a^ry¹⁹⁵⁹^7.0
^O^c^t^{ober 1954}^13.0
^O^c^t^{ober 1952}^12.5
^O^c^t^{ober 1950}^77.0
^S^o^u^rce:^S^o^ci^al^S^ecu^ri^t^y^A^d^mⁱⁿⁱ^st^ratⁱ^oⁿ^.
^a^.^O^r^ig^ina^lly^c^o^m^pute^d^as²^.⁴^%^{, the}^C^O^L^A^pa^y^a^ble^{in J}^a^nua^r^y^{2000 w}^a^s
^c^o^r^r^e^c^t^e^d^{to 2.5%}^unde^r^P^.^L^.^106-^554.
^{b. A}^u^tom^a^tic^C^O^L^A^s^be^g^a^n.
^c.^In^{crease cam}^{e i}ⁿ^t^w^o^st^ep^s.
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Table 3. Social Security and Medicare Hospital Insurance Taxable
Earnings Bases Since the Beginning of the Programs
^{Year E}^f^fective^Ta^xa^ble^Ea^rⁿ^ing^s^B^a^se^OAS^D^I^H^I
²⁰⁰⁹^$106,800^A^l^l^earnⁱⁿ^g^s
²⁰⁰⁸^102,000^A^l^l^earnⁱⁿ^g^s
²⁰⁰⁷^97,500^A^l^l^earnⁱⁿ^g^s
²⁰⁰⁶^94,200^A^l^l^earnⁱⁿ^g^s
²⁰⁰⁵^90,000^A^l^l^earnⁱⁿ^g^s
²⁰⁰⁴^87,900^A^l^l^earnⁱⁿ^g^s
²⁰⁰³^87,000^A^l^l^earnⁱⁿ^g^s
²⁰⁰²^84,900^A^l^l^earnⁱⁿ^g^s
²⁰⁰¹^80,400^A^l^l^earnⁱⁿ^g^s
²⁰⁰⁰^76,200^A^l^l^earnⁱⁿ^g^s
¹⁹⁹⁹^72,600^A^l^l^earnⁱⁿ^g^s
¹⁹⁹⁸^68,400^A^l^l^earnⁱⁿ^g^s
¹⁹⁹⁷^65,400^A^l^l^earnⁱⁿ^g^s
¹⁹⁹⁶^62,700^A^l^l^earnⁱⁿ^g^s
¹⁹⁹⁵^61,200^A^l^l^earnⁱⁿ^g^s^a
¹⁹⁹⁴^60,600^A^l^l^earnⁱⁿ^g^s
¹⁹⁹³^57,600^$135,000
¹⁹⁹²^55,500^130,200^b
¹⁹⁹¹^53,400^125,000
¹⁹⁹⁰^51,300^51,300
¹⁹⁸⁹^48,000^48,000
¹⁹⁸⁸^45,000^45,000
¹⁹⁸⁷^43,800^43,800
¹⁹⁸⁶^42,000^42,000
¹⁹⁸⁵^39,600^39,600
¹⁹⁸⁴^37,800^37,800
¹⁹⁸³^35,700^35,700
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^c
^1966-¹⁹⁶⁷^6,600^6,600
^1959-¹⁹⁶⁵^4,800^—
^1955-¹⁹⁵⁸^4,200^—
^1951-¹⁹⁵⁴^3,600^—
^1937-¹⁹⁵⁰^3,000^—
^S^o^u^rce:^S^o^ci^al^S^ecu^ri^t^y^A^d^mⁱⁿⁱ^st^ratⁱ^oⁿ^.
^a^.^T^h^e^{HI ta}^x^a^ble^e^a^r^ning^{s ba}^se^w^a^{s e}^lim^ina^t^e^d^by^the^Om^{nibus Budg}^e^t^Re^c^onc^ilia^tion^Ac^t^o^f
^1993.
^{b. T}^h^e^H^I^ta^x^a^ble^e^a^r^ning^s^ba^s^e^w^a^s^r^a^is^e^d^{to $125,000 a}^s^a^r^e^v^e^nue^-^r^a^is^ing^m^e^a^s^ur^e^{in the}
^O^m^nibus^Budg^e^t^Re^c^onc^ilia^{tion A}^c^{t of}^1990.
^c^.^{1966 w}^a^s^the^fⁱ^r^s^{t y}^e^a^r^{in w}^h^ic^{h the}^H^I^ta^x^w^a^s^le^vⁱ^e^d^.
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Table 4. Impact of January 2009 COLA on
Monthly Benefit Levels
Before After
5.8% COLA5.8% 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:
Indivi dual $637 $674
Couple $956 $1,011
^Source:^S^o^ci^al^S^ecu^ri^t^y^A^d^mⁱⁿⁱ^s^t^ratⁱ^oⁿ^,^O^c^t^{ober 16, 2008.}
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