The cost-of-living adjustment, or COLA, in 2013 was 1.5 percent. COLAs were designed to adjust Social Security and Supplemental Social Security payments to keep pace with inflation and maintain the recipient's purchasing power.
Legislation providing COLAs was enacted in 1973. Adjustments are announced in December and become effective the following January. The formula used to calculate COLA is specified in the Social Security Act and is based on increases in the Consumer Price Index of Urban Wage Earners and Clerical Workers or CPI-W. The Bureau of Labor Statistics calculates these values on a monthly basis. Any increase in the COLA is determined by the average of the third quarter CPI-W for the current year over the third quarter of the last year a COLA was effective.