What method does the government use to adjust Social Security benefits annually?

The government uses the Cost-of-Living Adjustment (COLA) method to adjust Social Security benefits annually to help recipients maintain their purchasing power amidst inflation. This adjustment is tied to changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), measured by the Bureau of Labor Statistics. When inflation occurs, the COLA ensures that Social Security benefits are increased to reflect the rising cost of goods and services.

The intention behind the COLA is to ensure that beneficiaries receive enough income to cover essential expenses as prices rise over time. This adjustment typically occurs each year, based on the CPI-W from the third quarter of the previous year compared to the third quarter of the current year, allowing for a systematic and equitable way to support beneficiaries as the economy fluctuates.

Other methods mentioned in the choices do not directly pertain to how Social Security benefits are adjusted. While the Consumer Price Index is related to the measurement that influences COLA, it is not a standalone method for adjusting benefits. Thus, COLA is the specific adjustment process implemented to address the financial needs of Social Security recipients effectively.