Do You Understand These 5 Critical Facts About Social Security COLAs?

Those approaching retirement may be looking forward to collecting Social Security benefits, but they may not be thinking too much about Social Security's cost-of-living adjustments, or "COLAs."

Those COLAs are important, though, as they can help retirees keep up with inflation. Without them, a benefit you started receiving 25 years ago might only be able to buy half as much as it first could.

Here are some things to know about COLAs.

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1. Increases don't happen every year

You'll find that there's a COLA applied to retirement benefits in most years -- but not in all years. Check out some recent COLAs:

It all depends on measurements of inflation in the recent past, and a period with little or no inflation can result in a COLA of 0%. Specifically, a COLA is calculated by comparing prices in the third quarter of two consecutive years. So 2026's COLA will be based on the Consumer Price Index (CPI) numbers from July, August, and September of 2025 in relation to the same three-month period from 2024. The year-over-year percentage change will determine the COLA.

2. The size of your Social Security benefit matters

This might be obvious to some, but when you think about when to claim your Social Security benefits, remember that the bigger your benefit, the greater your COLA increases will be. For example, imagine someone collecting $2,000 each month. (The average monthly retirement benefit was $2,008 as of August, by the way -- totaling about $24,000 per year.) If there's, say, a 3% COLA, their new benefit amount would be $2,060 -- $60 more. But if their benefit was, say, $2,500 per month, a 3% increase would get them to $2,575 -- and an increase of $75.

So factor this consideration into your deliberations when deciding when to claim. (By the way, studies suggest that for most people, waiting until age 70 is the best move.)

3. COLAs are calculated imperfectly

Here's an underappreciated fact: The measure of inflation that Social Security uses to determine COLAs is not the best one. It uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) -- which is not the best inflation measure to use, since there is actually a Consumer Price Index for the Elderly (CPI-E). The one used is based on changes in the average prices of household goods such as food, housing, and transportation and is focused on costs borne by workers more than retirees.

The Consumer Price Index for the Elderly (CPI-E), on the other hand, weighs categories such as healthcare and housing more heavily.

According to The Senior Citizens League (TSCL):

According to TSCL's research, Social Security benefits have lost over thirty percent of their purchasing power since 2000 due in large part to inadequate COLAs and rising healthcare costs. To address this growing issue, TSCL urges Congress to adopt legislation that would base the COLA on an inflation index specifically for seniors, like the Consumer Price Index for the Elderly (CPI-E).

In a 2024 report, the TSCL noted that:

The reality is that COLAs have become less and less likely to match inflation over time. In the 1990s and 2000s, 60% of COLAs beat inflation. In the 2010s, only 40% did. Through the 2020s so far, only 1 COLA out of 5 (2023; 8.7%) has done so.

4. There are no negative COLAs

Here's a little good news. There is such a thing as deflation, where prices generally decline, but if and when that happens, Social Security will not be instituting negative COLAs. The lowest possible COLA is 0%.

(Note, though, that Social Security is facing a funding shortfall, and benefits could shrink within a decade if nothing is done. There are ways to fix it, though.)

5. The COLA for 2026 will be announced soon

Finally, know that the upcoming COLA will soon be announced. The number, projected by some to be 2.7%, is expected to be revealed on Oct. 24.

As you plan for your retirement, get savvy about Social Security -- and its COLAs.