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<!-- #BeginEditable name="pagetitle" --><h2 class="center">Application of COLA to a Retirement Benefit</h2><!-- #EndEditable -->
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<!-- Updated October 10, 2024 -->
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<tbody><tr valign="top">
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<td width="25%" style="padding-left:20px" class="greycell"><span class="ninetypercent">
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<p><a href="index.html">Automatic Determinations</a></p>
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<p><a href="colaseries.html">COLA history</a></p>
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<p><a href="SSI.html">Federal SSI benefit rate</a></p>
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<p><a href="latestCOLA.html">Latest COLA determination</a></p>
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<p><a href="wageindexed.html">Wage-indexed amounts</a></p></span>
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</td>
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<td><p><b>General</b><br />
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A COLA increases a person's Social Security retirement benefit by
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<i>approximately</i> the product of the COLA and the benefit amount. The
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exact computation, however, is more complex.
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<p>
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Each Social Security benefit is based on a "primary insurance amount," or PIA.
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The PIA in turn is directly related to the primary beneficiary's earnings
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through a <a href="piaformula.html">benefit formula</a>. It is the PIA that
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is increased by the COLA, with the result truncated to the next lower dime.</p>
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<p><b>Example</b><br />
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If the initial PIA is $2,010.50 and it is increased
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by a 2.5-percent COLA, the new PIA would be $2,060.70 after
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truncation to the next lower dime.</p>
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<p><b>Early or delayed retirement affects your benefit amount</b><br />
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If you choose to retire before your <a href="../ProgData/nra.html">normal
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retirement age</a>, your benefit will be lower than your PIA. On the other
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hand, if you choose to retire after you attain your normal retirement age,
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your benefit will be higher than your PIA.</p>
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<p><b>Steps leading from the PIA to the benefit amount</b>
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<ol><li> A factor is applied to the PIA to account for
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<a href="../ProgData/ar_drc.html">early or delayed retirement</a>, with the
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result truncated to the next lower dime</li>
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<li> Any offset to the benefit, such as payment of the Medicare
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Supplementary Medical Insurance (SMI) premium, is subtracted</li>
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<li> Finally, the resulting amount is truncated to the next lower dollar</li>
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</ol></p>
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<p><b>Summary</b><br />
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When a COLA occurs, we increase the PIA as described above, and we repeat the
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steps required to calculate the new benefit amount based on the new, higher PIA.
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Due to the rounding, possible offsets, and final truncation in these steps, the
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increase in the new monthly benefit amount over the previous amount may differ
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somewhat from the COLA.</p>
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