Understanding Social Security Cost of Living Adjustments

When you are eligible for Social Security, you will want to understand what cost of living adjustments are and how they work. Here are the basics of cost of living adjustments and what you should expect out of them.

Cost Of Living

The idea behind cost of living adjustments with Social Security is to make sure that your Social Security benefits do not lose their value in comparison to the rest of the economy. In most cases, the country goes through inflation every year. Because of this, the value of the dollar decreases in relation to products and services in the economy. If there were no cost of living adjustments with Social Security, you would have a lot of retired people who would not be able to live off of their benefits.

How it Works

These adjustments are calculated based on the Consumer Price Index. The Consumer Price Index keeps track of the change in prices from one period to the next. This is an accurate measurement of inflation. If there is no cost of living adjustment, your benefits are going to stay the same. Once they get to a certain point, they will not go back down based on a recession or anything else. 

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