Social Security: The Cost-of-Living Adjustment in January 2006

Publication Date: October 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Labor

Type:

Abstract:

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 checks always reflect the benefits due for the preceding month).

The 4.1% COLA payable in January 2006 was triggered by the rise in the CPI-W from the third quarter of 2004 to the third quarter of 2005. 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 also receive a 4.1% COLA in January 2006. This report is updated annually.