A cost-of-living adjustment (COLA) is the yearly increase to Social Security and Supplemental Security Income designed to offset inflation.

It helps checks keep pace with rising prices but doesn’t guarantee full protection against every expense change. Understanding how COLA is calculated—and where it can fall short—lets retirees plan budgets with fewer surprises.

What COLA Means

COLA is an automatic percentage boost applied to eligible Social Security and SSI benefits. The aim is simple: preserve purchasing power as everyday costs climb. If your annual benefit was $10,000 and the COLA were 2.5%, your new total would be $10,250; with a 2.8% COLA, it would be $10,280.

"Social Security is a promise kept, and the annual cost-of-living adjustment is one way we are working to make sure benefits reflect today’s economic realities and continue to provide a foundation of security," said Social Security Administration Commissioner Frank J. Bisignano.

How It's Measured

COLA is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index tracks price changes for a broad "basket" of goods and services. When the CPI-W rises between defined measurement periods, Social Security applies that increase to the following year’s benefits.

A Brief History

Before 1975, Congress enacted benefit increases by special legislation. Automatic annual COLAs began in 1975 to better align payments with inflation. The late 1970s and early 1980s saw double-digit inflation and large COLAs, including a record 14.3% in 1980.

In low-inflation years, increases have been modest—and in 2010, 2011, and 2016 there was no COLA at all.

Annual Calculation

The Social Security Administration compares the average CPI-W for the third quarter (July–September) of one year to the same quarter of the next. The percentage increase becomes the COLA for the coming calendar year. For context, the COLA was 8.7% in 2023, 2.5% in 2025, and 2.8% for 2026 based on the most recent CPI-W patterns.

Who Gets COLA

All Social Security beneficiaries—retirement, survivors, and disability—receive the COLA; SSI recipients do as well. The increase is applied automatically to your monthly payment. If you're newly entitled mid-year, the raise still applies, though your first adjusted check may arrive later depending on payment timing and processing.

Hold Harmless

Medicare Part B premiums are generally deducted from Social Security benefits. The "hold-harmless" rule protects many beneficiaries from seeing their net check drop solely because Part B premiums rose more than their COLA.

In years with tiny or no COLA, a large share of enrollees may be held harmless, limiting their premium increase to avoid a lower net benefit.

Beyond SSA

COLA shows up outside Social Security, too. Some employers provide temporary cost-of-living pay when workers are assigned to higher-cost cities, and certain pension plans or long-term contracts include inflation clauses. These adjustments are separate from the government’s formula and follow their own rules and timelines.

Plan Your Budget

COLA is a helpful cushion, but it may not mirror a retiree's specific bills. Healthcare, housing, and utilities can move differently than the CPI-W. Build an annual review into your plan: update spending, check your net benefit after Medicare premiums, and adjust withdrawals from savings to cover any shortfall that COLA doesn't fill.

FAQ Quick Math

To estimate your 2026 monthly increase, multiply your current monthly benefit by 0.028. Add that result to your 2025 amount to get an approximate 2026 payment. Example: $2,000 × 0.028 = $56; new estimated monthly benefit ≈ $2,056, before any Medicare premium changes or tax withholding.

Limits And Nuance

COLA relies on CPI-W, which reflects workers' spending, not specifically retirees'. If medical or housing costs rise faster than the index, purchasing power can still erode. Conversely, in subdued inflation periods, COLA will be small or even zero.

That's why an emergency buffer and flexible withdrawals from savings remain essential pieces of a retirement plan.

Taxes And Timing

Your COLA-boosted benefit may affect taxes. Depending on total income, part of your Social Security may be taxable. Review withholding after each COLA to avoid surprises next filing season.

If you're near Medicare premium thresholds, a higher income year (including retirement account withdrawals) can increase premiums—another reason to coordinate taxes, withdrawals, and benefits.

Action Steps

First, verify your updated benefit in your my Social Security account each January. Second, revisit your budget against actual bills—especially healthcare and housing. Third, if you draw from savings, adjust your withdrawal plan to maintain purchasing power without overspending during high-inflation stretches.

Conclusion

COLA is built to help benefits keep up with inflation, not to eliminate every cost squeeze. Know how it's calculated, confirm your annual increase, and fine-tune your budget for premiums, taxes, and faster-rising expenses.

What’s your next move—updating your budget, checking your my Social Security account, or setting a review reminder for next year’s COLA?