Thanks to inflation, the cost of living the same lifestyle as the year before typically increases. As far back as 1975, the cost of living has never gone down from the previous year, according to the Social Security Administration. Between the years of 1999 and 2009, the average cost of living adjustment for Social Security recipients sat at 2.8 per cent, based on yearly per cent increases from the Social Security Administration.
The Consumer Price Index (CPI) tracks monthly data on changes in the price paid for a representative basket of goods and services. The annual increase affects incomes for federal workers and many union workers. It also affects eligibility requirements for food stamps and discounted school lunches.
The Bureau of Labor Statistics (BLS) uses more than 200 different categories to determine the CPI and cost of living increase. Some categories include housing, clothing, medical care, transportation costs and food.
The CPI excludes investment items. Since real estate investments, life insurance and bonds deal with savings, they don't fall into everyday expense categories, the BLS notes.
The cost of living changes from year to year. The highest adjustment occurred in 1980, with a 14.3 per cent increase. In 2009, however, there was no cost of living increase, according to the Social Security Administration.