What Is A Social Security Cost Of Living Adjustment (COLA)?

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If you’re one of the 74 million or so people receiving Social Security benefits, you probably pay close attention to the annual cost-of-living adjustment, or COLA, which is announced in October each year. The COLA is a change in your monthly benefit to ensure that your purchasing power remains the same even when prices rise due to inflation.

Social Security benefits increased by 2.5 percent in 2025 and are expected to rise by 2.5 percent again in 2026, according to The Senior Citizens League, a nonpartisan senior citizens group that accurately predicted the last increase.

Here’s how the COLA is figured and who receives the benefit.

How the Social Security COLA is calculated

By law, the cost-of-living adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a measure of inflation calculated by the Bureau of Labor Statistics (BLS).

To figure the index, the BLS administers a consumer expenditure survey to collect information every three months from approximately 7,000 individuals and families about the things they buy regularly — everything from personal care products to vehicle registration fees.

BLS data collectors then call retail stores, doctor’s offices and service establishments to determine the price changes for the approximately 80,000 items included in the CPI-W.

If there is no change in the CPI-W — which was the case in 2015 — there is no COLA for the following year. In 2016, there was a small increase of 0.3 percent in the COLA, which went into effect at the start of 2017.

Here’s a historical look at the COLA increases over the last 10 years.

The CPI-W and how it is calculated are sometimes the subject of debate. For instance, because it is based on a basket of products reflecting the spending of younger, working people, some critics say it doesn’t accurately measure the inflation experienced by older retirees, who may purchase more prescription drugs and medical services.

So a year with a low increase — or none at all — may really hurt Social Security recipients.

Why a Social Security COLA increase is so important

While COLA increases may seem paltry, even a small adjustment makes a big difference in the value of your dollar over time. For instance, while inflation was extremely low from 2010 to 2020, it averaged around 2.4 percent a year from 1990 to 2020, skyrocketed to 8 percent in 2022 and has been sitting around 2.4 percent so far this year.

But how big a difference can 2.4 percent inflation make? Let’s say you retire today at age 62 with a $2,000 monthly benefit. With inflation at 2.4 percent, you’d need a monthly benefit of $2,658 to maintain your purchasing power when you hit 74 years old. Another 10 years and you’d need $3,370 each month to have the same purchasing power as when you first retired. So at age 84 without a COLA, your money wouldn’t go nearly as far as it did when you first started receiving benefits.

Stashing money in a high-yielding certificate of deposit or a savings account is one way to help beat inflation. But it’s useful to have a diversified portfolio of investments that can grow over time and potentially earn more, helping you grow your purchasing power.

While inflation was relatively tame in the 2010s, it was much higher in 2021 and 2022. There have even been times — such as in the 1970s when legislation was enacted to provide COLAs — when inflation was in the double digits. For people living on a fixed income, the COLA is a critical safety net.

But assuming Social Security will cover all your bills in retirement is one of the biggest mistakes that near-retirees make. Here’s how much the average Social Security recipient gets.

Who is eligible for a Social Security COLA?

While Social Security retirement recipients are the largest group to benefit from a COLA, they aren’t the only ones. Individuals receiving Supplemental Security Income, a federal program to help seniors age 65 or older, blind and disabled people, and individuals receiving disability payments, also get COLAs.

Military and federal civil service retirees have cost-of-living adjustments as well, and some unions negotiate COLAs in their contracts. Finally, eligibility for such government programs as food stamps and free school lunches is also tied to changes in the CPI-W.

Social Security COLA FAQs

• Is Social Security getting a COLA increase in 2025?
  

  The Social Security Administration announces cost-of-living adjustments (COLAs) in October each year, then the COLA takes effect in January. A COLA hasn’t been announced yet in 2025, but The Senior Citizens League is estimating a 2.5 percent increase that would take effect in 2026.

• Is a COLA the same as a raise?
  

  When you’re receiving a fixed income, a COLA is, in effect, a raise. Your Social Security income only increases when a COLA happens. A COLA is done to help ensure that your purchasing power remains the same, but the end result is that your income increases, just like with a raise. Outside of Social Security, a raise and a COLA are different. One typically recognizes your performance, the other is based on the cost of living.

• When does a Social Security COLA go into effect?
  

  Social Security COLAs are implemented annually. Most beneficiaries will see the change in their January checks, though those who receive Supplemental Security Income will get the COLA earlier on Dec. 31.

Bottom line

A cost-of-living adjustment provides a key way that Social Security recipients and others can avoid having their purchasing power decline significantly over time. Those investing for retirement need to ensure that they have money there when they need it, which is why it’s so critical that workers not be too conservative in their other investments.