The 1935 Social Security Act created America’s federally funded old-age retirement program for workers. The Social Security Administration started collecting contributions two years later. Some workers received lump-sum annual payments that same year. Monthly payment distribution started in 1940.
The Social Security Administration notes that although Congress periodically passed legislation that increased worker’s benefit amounts, the annual Cost of Living Adjustments didn’t start until 1975.
1975 COLA Legislation
Congress passed legislation in 1972 that provided annual reviews of Social Security benefits in comparison to inflation and wage economic statistics. The Consumer Price Index in 1972 showed that inflation reduced buying power for Social Security recipients significantly.
The AARP reports that in 1975, the first COLA increased all Social Security benefits by 8 percent. By 1980, inflation resulted in a 14.3 percent COLA. The following year, Social Security recipients got an 11.2 percent COLA.
1977 COLA Amendments
In 1977, Congress reviewed the economic indicators that they originally used to create automatic COLAs and discovered a flaw. Their initial COLA formula created a double adjustment for inflation. The correction to the COLA formula also addressed potential long-term and short-term funding problems, according to the Social Security Administration.
Without a corrected estimate, future withdrawals by baby boomers, the largest generation in the workforce, could have depleted the fund supporting Social Security. The 1972 legislation’s formula had another troublesome element. The automatic COLA s would result in retirement benefits that exceeded the gross pay that many recipients earned while working.
Exploring COLA Trends
Congress allowed a five-year phase for these course corrections instead of decreasing payments to beneficiaries to recoup previous COLA increases. After the phase-in period for the 1977 amendments, COLAs after 1981 have been much more modest than during the period from 1975 to 1981.
Since 1981, they have never reached double digits again, according to Social Security Administration reports. The 1982 7.4 percent COLA was followed by COLAs that declined from 3.5 percent in 1983 to just 1.3 percent in 1986.
The 1990s saw COLA highs of 5.4 percent and COLA lows of 1.3 percent, with the decade closing at 2.5 percent. The highest COLA between 2000 and 2010 was 5.8 percent in 2008. In 2009, Social Security recipients faced the first year of no COLA at all.
In 2010, Social Security had no COLA, and it was 0.0 percent again in 2015. In 2011, beneficiaries received a 3.6 percent COLA, the highest for this decade. The decade ends with a 1.3 percent COLA for 2020.
Social Security Before 1975 COLAs
From 1940 to 1949, Social Security recipients received the same fixed monthly payment. Congress increased these payments for the first time in 1950 by passing a special amendment to the 1935 law. The 1950 adjustment increased benefits by 77 percent, according to the Social Security Administration.
Congress authorized additional increases in 1952, 1954 and 1959. Recipients then received sporadic increases from 1965 through 1974. At 13 percent, the 1968 increase was the highest since 1954.
During the early 70s, before automatic COLAs took effect, Congress authorized an increase every year between 1970 and 1974. A 20 percent increase in 1972 was the highest increase during this period.
- Social Security Administration: Social Security History
- AARP: History of Social Security COLA Increases By Year
- Social Security Administration: Historical Background And Development Of Social Security
- Social Security Administration: Cost-Of-Living Adjustments
- Social Security Administration: Social Security History, The Story of COLAs
- Social Security Administration. "Social Security Amendments of 1972: Summary and Legislative History." Pages 3-4. Accessed Feb. 18, 2020.
- Congressional Research Service. "Social Security: Cost-of-Living Adjustments." Page 1. Accessed Feb. 18, 2020.
- Federal Reserve Bank of Minneapolis. "Consumer Price Index, 1913 -" Accessed Feb. 18, 2020.
- Social Security Administration. "Latest Cost of Living Adjustment." Accessed Feb. 18, 2020.
- Social Security Administration. "Cost-of-Living Adjustment (COLA) Information for 2020." Accessed Feb. 18, 2020.
Carol Luther has published feature articles in print magazines, ghostwritten blogs, and produced digital content since 2007. She has published personal finance and small business articles for the Houston Chronicle, Mahalo, the Nest, USA Today, Wahm, and Zacks. Carol has designed, implemented and managed multi-year, multimillion-dollar domestic and international projects services for higher education, nonprofits, and small to medium businesses for more than 20 years.