The short answer is yes: Social Security benefits are adjusted upward for the effects of inflation. This Social Security cost-of-living increase is officially known as the cost-of-living adjustment (COLA). Each year, the Social Security Administration (SSA) decides whether the following year’s benefit will include a COLA and, if so, how large it should be. Contribution levels to the program are also linked to inflation.
The longer answer is more complicated: Some expenses, particularly those facing retired people, are not always reflected in inflation data. If those costs increase faster than the COLA, elderly individuals may suffer a net loss of buying power.
Social Security benefits were not always adjusted for inflation—that started in the 1970s. Let’s take a look at what prompted the SSA to implement the COLA and how it is determined.