If you're a retiree on Social Security, there's probably one big piece of news you eagerly anticipate each year: your cost-of-living adjustment (COLA) announcement.
In 2025, Social Security benefits received a 2.5% COLA. In 2026, retirees are getting a 2.8% COLA.
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You may be looking forward to seeing your Social Security checks increase in the new year. But do you really understand how Social Security COLAs work? Once you do, you may realize that the raise won't go as far as you might expect it to.
Here are some key things to know about Social Security COLAs.
1. They weren't always automatic
You may be aware that these days, Social Security benefits are automatically eligible for a boost each year. But that wasn't always the case.
Prior to 1975, Social Security COLAs were set by legislation. This means lawmakers had to specifically meet and vote in a raise for benefits to go up. The current system is far more efficient, allowing seniors to have a chance at keeping up with inflation without legislative bottlenecks getting in the way.
2. They're based on very specific inflation data
Social Security COLAs are based on changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But it gets even more specific than that.
Social Security COLAs are calculated by taking CPI-W data from July, August, and September each year and comparing it to data from those same three months a year prior. If there's an increase, Social Security benefits go up the following year.
3. There's no such thing as a negative COLA
It's not a given that Social Security benefits will increase every year. There have been several years in the past when those benefits did not go up at all.
However, there's no such thing as a negative Social Security COLA. If the CPI-W has a year-over-year decrease during the third quarter of a given year, benefits will simply remain flat. Seniors are protected from seeing their monthly checks shrink from one year to the next.
And that protection extends to Medicare enrollees, too. If there's a year when a rise in Medicare Part B premiums exceeds whatever Social Security COLA arrives, seniors are protected from seeing their benefits decrease from where they were.
4. They tend to fail seniors
The whole purpose of Social Security COLAs is to help ensure seniors are able to keep up with inflation. But a big flaw in the way they're calculated tends to produce the opposite result.
The Senior Citizens League, an advocacy group, reports that between 2010 and 2024, Social Security recipients lost 20% of their buying power due to insufficient COLAs. And a big reason is that the CPI-W is not a good basis for measuring those raises.
The problem with the CPI-W is that it does not accurately reflect the costs seniors on Social Security specifically face. Instead, it focuses on the costs incurred by workers in urban areas.
Healthcare costs have, in recent years, outpaced broad inflation. And healthcare tends to be a huge spending category among retirees.
That isn't reflected in the CPI-W, though. So until lawmakers change the way Social Security COLAs are calculated, those raises may continue to fall short. That applies to the upcoming 2.8% COLA many retirees are anticipating in 2026.
It's helpful to understand the ins and outs of Social Security COLAs if you're someone who relies upon them. It's also crucial to recognize why those COLAs may only do so much for your finances, and to try to accumulate retirement savings so you have a way to supplement your Social Security benefits once you stop working.
