An automatic cost-of-living increase is a vital aspect of adjusting social security benefits to account for inflation.
This blog post breaks down the process of calculating the increase based on the Consumer Price Index (CPI) and the Average Wage Index (AWI), as described in § 404.275. By understanding how these calculations are made, you can better grasp the implications of these increases on your benefits.
- Calculating Increase Based on the CPI (§ 404.275(a))
To compute the average of the CPI for the quarters that begin and end the measuring period, the following steps are followed:
a. Add the three monthly CPI figures b. Divide the total by three c. Round the result to the same number of decimal places as the published CPI figures
If the average for the ending quarter is higher than the average for the beginning quarter, the percentage increase in the CPI over the measuring period is determined by dividing the average for the ending quarter by the average of the beginning quarter.
- Calculating Increase Based on the AWI (§ 404.275(b))
If the AWI for the year that ends the measuring period is higher than the AWI for the year which begins the measuring period, and all the other conditions for an AWI-based increase are met, the percentage increase in the AWI is determined by dividing the higher AWI by the lower AWI.
- Rounding Rules (§ 404.275(c))
The increase from the applicable paragraph (a) or (b) is rounded to the nearest 0.1 percent, with 0.05 percent and above rounded to the next higher 0.1 percent, and otherwise rounding to the next lower 0.1 percent. This percentage increase is then applied to the amounts described in § 404.271, and the resulting dollar amounts are rounded to the next lower multiple of $0.10 (if not already a multiple of $0.10).
- Additional Increase (§ 404.275(d))
For information on the possibility of an additional increase, refer to § 404.278.
Conclusion: Understanding the calculation of automatic cost-of-living increases helps individuals to better comprehend how their social security benefits are adjusted in response to inflation. By considering both the CPI and AWI, these calculations ensure that beneficiaries’ purchasing power remains consistent over time.
https://www.ssa.gov/OP_Home/cfr20/404/404-0275.htm
At Hugo Fierro & Michael Perez, our team of experienced professionals is dedicated to providing comprehensive guidance and support for individuals navigating the complexities of Social Security Disability claims. We strive to empower our clients with the knowledge and resources necessary to make informed decisions and pursue the benefits they deserve.