What is A Cost of Living Adjustment (COLA)?

Submitted by John on Mon, 01/31/2011 - 10:46

What Is COLA, And How Will It Affect My Social Security Disability Benefits?

For people on Social Security Disability, Cost Of Living Adjustment (COLA), is based on the Consumer Price Index. It is automatically adjusted each year to reflect increases to the cost of living.

As of January 2011, the last time a COLA for those who require Social Security Disability was put into place was 2008. The law requires that the Social Security Administration use the average Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, from the third quarter of 2008 to calculate any future COLA. The CPI-W is calculated by the Bureau of Labor Statistics in the Department of Labor.

A Cost of Living Adjustment can add additional funds to your budget each month, and for those on Social Security Disability and other Social Security programs, these dollars can make a difference.

How Is COLA Used?

In general, a Cost Of Living Adjustment automatically increases a person’s Social Security Disability benefit payments whenever the CPI-W increases. This ensures that the purchasing power of the benefits Social Security recipients receive remains stable, despite any inflation that occurs.

Before Congress enacted the COLA provision during the 1972 Social Security Amendments, special legislation was required in order for benefits to increase – making COLA a much more reliable standard for ensuring Social Security Disability benefits remain fairly regulated.

Even if the CPI-W decreases, the amount beneficiaries receive remains unchanged, until another COLA goes into effect.

Will COLA Ever Cause My Social Security Disability Benefits to Be Reduced?

Cost Of Living Adjustments only increase. Over the decades, COLA has been part of the Social Security payment structure, it has stalled a few times, but never caused a decrease in Social Security Disability benefits. In years like 2016, where no COLA increase occurred, people who rely on Social Security Disability payments found that they must cut back to make the money they receive sustain.

Living Through Years With No COLA Increases: Stretch Your Money.

COLA benefit increases are rarely significant, but they do represent a large enough increase to make a difference to your budget’s base. With price increases everywhere and no COLA in sight until at least 2017, people who rely on Social Security Disability and other Social Security payments often feel as though they have a lot less money to spend.

Finding ways to save money and make your Social Security Disability payments sustain is a crucial strategy. Here are some tips for making your money last.

  • Buy Generic Medications. If your doctor has prescribed medications for your condition, be sure you are getting the least expensive version. Brand name prescriptions cost significantly more than generics do, convincing you to the brand rather than the medicine. Sometimes it is possible to get a sample of the medication you are prescribed. However, pharmaceutical companies are feeling the pinch like everyone else, so this is not as easy as it once was. Keep in mind, Medicare and Social Security Disability benefits may very well cover the cost of the medications you need.

  • Buy Generic Non-Prescription Items. Over the counter medications, vitamins, and other supplements can be costly. So whether you need cough drops or Omega-3, be sure to look for the best value. Calculate the price per dose rather than the price per unit overall. Sometimes, manufacturers will offer a lower price on a large bottle of vitamins that contains more air than anything else, and some supplements are available in various sizes. The few minutes it takes to do your homework here can save you plenty of money over time. Social Security Disability benefits do not normally cover any of these costs. Therefore, watching them closely is imperative.

  • Make A Budget And Stick To It. Although this advice may seem obvious, many people have not given much thought to creating a monthly budget. Keep in mind that unexpected expenses can easily arise, so if at all possible, try to set some money aside for emergencies.

  • Keep Expenses To A Minimum. Keeping various expenses to a minimum is an excellent way to maximize the benefits you receive from Social Security Disability, especially when there is no COLA to rely on. Common sense solutions such as saving money on electricity by watching your heating and cooling costs, saving money on gasoline by condensing all errands into a single trip, and even buying necessities online can help keep your costs under control. If you are not sure where your money is going, start keeping track. You will find that seemingly insignificant expenditures really do add up, because when there is no COLA, every penny has to count.

Supplementing COLA and Social Security Disability Benefits: Limited Work.

Over time, the rules for supplementing Social Security Disability benefits have changed. It may be possible for you to augment your income by working on a very limited basis. Of course, you must be sure not to change your disability status, which may risk you losing your benefits. In general, if you earn less than $1,000 per month in 2011, then you can keep on receiving your benefits. It is quite important to report anything that could be construed as work activities to the Social Security Administration, as failing to do so could cause your benefits to be revoked.

Taking advantage of the Social Security Administration’s Ticket to Work program may be a good way to supplement Social Security Disability benefits, especially during years when there is no COLA to rely on. The Ticket to Work program lets you try to go back to work, on a limited basis, while continuing your Social Security Disability benefit as well as your Medicare benefits.

People who decide to go back to work have nine non-consecutive months to earn wages. If they find that they cannot continue working due to their ongoing disability, there are no repercussions from the Social Security Administration, and their Social Security Disability benefits return entirely once they stop working.

People who discover that they are successful with retraining, or working in a new field, have a grace period of ninety-three months to take advantage of free Part A Medicare, as well as a five year grace period for full reinstatement of Social Security Disability. If a person who previously received Social Security Disability benefits discovers that their disability has recurred, there is no need to file a new claim with the Social Security Administration within those five years.