Social Security benefits received a 2.5% cost-of-living adjustment in 2025, affecting more than 72.5 million Americans. The annual adjustment represents a critical component of Social Security that directly impacts retirement income, disability benefits, and survivor payments.
What Is the Social Security COLA?
The cost-of-living adjustment functions as an annual increase designed to prevent inflation from eroding the purchasing power of Social Security benefits. Without this adjustment, fixed monthly payments would buy fewer goods and services each year as prices rise.
Congress established automatic annual cost-of-living adjustments through the 1972 Social Security Amendments. Before 1975, benefits only increased when Congress passed special legislation. This meant beneficiaries often waited years between increases while inflation steadily reduced what their checks could buy.
The automatic adjustment system began in 1975, creating a formula-based approach that responds to economic conditions without requiring congressional action. The Social Security Administration now announces the adjustment each October, with the new benefit amounts taking effect the following January.
How COLA Gets Calculated
The Bureau of Labor Statistics produces the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which serves as the official measure for calculating Social Security’s cost-of-living adjustment. This index tracks price changes for a basket of goods and services purchased by households earning more than half their income from clerical or hourly wage jobs.
The CPI-W represents approximately 29% of the total U.S. population. The index measures price changes across categories including food, housing, medical care, transportation, and energy.
The calculation compares the average CPI-W reading for the third quarter (July, August, and September) of the current year against the same three-month period from the previous year. The percentage increase becomes the next year’s cost-of-living adjustment.
For example, the third-quarter 2024 CPI-W averaged 308.729, compared to 301.236 in the third quarter of 2023. The calculation shows: (308.729 – 301.236) / 301.236 x 100 = 2.5%. This resulted in the 2.5% adjustment for 2025.
When the third-quarter average shows no increase or a decrease, no adjustment occurs. Benefits never decrease, even during deflationary periods. This happened in 2010, 2011, and 2016 when beneficiaries received 0% adjustments.
Recent COLA History and Trends
The past few years produced higher-than-average adjustments due to elevated inflation. The 2022 adjustment reached 5.9%, followed by 8.7% in 2023 – the largest increase since 1981. The 2024 adjustment was 3.2%, then 2.5% for 2025.
These increases contrast sharply with the previous decade. From 2010 through 2020, cost-of-living adjustments averaged around 2%, with three years showing zero increase. The 16-year average before the recent inflation spike was 2.3%.
Historical adjustments peaked in 1980 at 14.3%, followed by 11.2% in 1981. These double-digit increases responded to severe inflation during that period. The 1975 adjustment, the first automatic increase, was 8%.
Projected 2026 COLA
Current projections estimate a 2.7% cost-of-living adjustment for 2026 based on inflation data through August 2025. The Social Security Administration typically announces the official adjustment in mid-October after reviewing complete third-quarter data.
A 2.7% increase would raise the average monthly retirement benefit by approximately $54. For retired workers receiving the average benefit of $2,005 in June 2025, this would result in a new monthly payment of around $2,059.
The projected adjustment reflects moderating inflation compared to 2022 and 2023. Both the Social Security Board of Trustees and advocacy groups like The Senior Citizens League estimate the increase will fall between 2.6% and 2.8%.
Impact on Different Beneficiary Groups
Retired Workers: Nearly 68 million Social Security beneficiaries received the 2.5% adjustment in January 2025. For the average retired worker receiving $1,927 monthly, this added about $49 per month or $588 annually.
Disabled Workers: Social Security Disability Insurance recipients, who averaged $1,542 monthly, saw their benefits increase by approximately $39 with the 2025 adjustment. The projected 2026 increase of 2.7% would add about $42 monthly.
Survivors: Beneficiaries receiving survivor benefits based on a deceased worker’s earnings record also receive the annual adjustment. The average survivor benefit was $1,574 in July 2025.
Supplemental Security Income: SSI payments, which go to 7.5 million low-income Americans, also increase with the COLA. The maximum individual SSI payment of $943 in 2025 would rise to approximately $968 with a 2.7% adjustment in 2026. SSI increases take effect on December 31, one day before the Social Security adjustment.
Medicare Premium Impact
Medicare Part B premiums significantly affect the actual value beneficiaries receive from cost-of-living adjustments. The 2025 standard Part B premium is $185 monthly, up $10.30 from 2024.
Projections indicate the 2026 Part B premium could jump to $206.50 monthly, an 11.6% increase of $21.50. This would represent the largest dollar increase since 2022 and nearly double the 2025 increase rate.
Since Medicare automatically deducts Part B premiums from Social Security checks for most beneficiaries, the premium increase reduces the net benefit from the COLA. If both projections hold, a $54 COLA increase minus a $21.50 premium increase leaves only $32.50 in additional monthly income – meaning the Medicare premium would consume nearly 40% of the cost-of-living adjustment.
The hold-harmless provision protects some beneficiaries from premium increases larger than their COLA. This rule prevents Social Security benefits from decreasing due to rising Part B premiums. However, with the projected 2.7% COLA and premium increase, only beneficiaries with monthly payments below approximately $796 would receive this protection.
Earnings Limits for Working Beneficiaries
Beneficiaries who continue working before reaching full retirement age face earnings limits. For 2025, those under full retirement age can earn up to $23,400 before Social Security deducts $1 from benefits for every $2 earned above this threshold.
A higher limit applies in the year someone reaches full retirement age. For 2025, this limit is $62,160, with $1 deducted for every $3 earned above the threshold. These limits typically increase each year based on wage growth.
Once reaching full retirement age, beneficiaries can earn unlimited income without any reduction in benefits. Full retirement age varies by birth year, ranging from 66 to 67 for current retirees.
Tax Implications
The cost-of-living adjustment applies to the benefit amount before any taxes. Some beneficiaries pay federal income tax on their Social Security benefits depending on their combined income.
Combined income includes adjusted gross income plus nontaxable interest plus half of Social Security benefits. Single filers with combined income between $25,000 and $34,000 may pay tax on up to 50% of benefits. Above $34,000, up to 85% of benefits may be taxable.
For married couples filing jointly, these thresholds are $32,000 and $44,000 respectively. A cost-of-living increase can push some beneficiaries into higher tax brackets or make more of their benefits subject to taxation.
The maximum taxable earnings subject to Social Security tax also adjusts annually. For 2025, this wage base increased to $176,100, up from $168,600 in 2024.
Controversy Around COLA Measurement
The use of CPI-W to calculate cost-of-living adjustments generates ongoing debate. Critics argue this index fails to accurately reflect the spending patterns and inflation experienced by retirees.
The Bureau of Labor Statistics produces an experimental Consumer Price Index for Americans aged 62 or older (CPI-E). This index shows higher inflation rates than CPI-W because older Americans spend more on medical care, which typically increases faster than other categories.
Analysis shows that from 1984 to 2006, COLAs based on CPI-E would have averaged 3.35% annually compared to the actual 3.02% average using CPI-W. The Senior Citizens League estimates Social Security benefits have lost 40% of their buying power since 2000 despite cost-of-living adjustments.
Research indicates that while COLAs increased benefits 64% between 2000 and 2022, the costs of goods and services rose 130% during the same period. This discrepancy suggests the adjustments consistently fall short of maintaining purchasing power.
Some policymakers have proposed switching to a “chained CPI” that accounts for consumer substitution behavior when prices rise. However, this would produce even lower adjustments than the current CPI-W formula. The Social Security Administration estimates that switching to chained CPI would push roughly 456,000 people into poverty by 2050.
Understanding Your COLA Notice
The Social Security Administration sends COLA notices in December, available both by mail and through the online my Social Security portal. The notice shows the exact dollar amount of your new benefit and any deductions for Medicare premiums or federal income tax withholding.
The Social Security Administration redesigned COLA notices in 2024 to make them clearer and easier to understand. The simplified version uses one page instead of multiple pages and provides personalized information with specific dates and amounts.
Beneficiaries can access their notice online through the Message Center in their my Social Security account starting in early December. The online system offers email or text message alerts when the notice becomes available, eliminating the need to wait for mail delivery.
Payment Schedule
Social Security payments follow a set schedule based on birth date. Those born between the 1st and 10th of any month receive payments on the second Wednesday of each month. Birth dates between the 11th and 20th result in payments on the third Wednesday. Those born between the 21st and 31st receive payments on the fourth Wednesday.
Some beneficiaries receive payments on different dates. Those who claimed benefits before May 1997, SSI recipients, and beneficiaries living outside the United States typically receive payments on the third of each month.
Planning for Future Adjustments
Cost-of-living adjustments remain uncertain until the Social Security Administration makes the official announcement each October. However, beneficiaries can monitor inflation trends through monthly CPI-W data to estimate likely adjustments.
The adjustment amount depends on economic conditions beyond anyone’s control. Higher inflation produces larger adjustments but also means goods and services cost more. Lower adjustments typically indicate cooling inflation, which benefits purchasing power if prices stabilize.
Understanding how Medicare premiums interact with cost-of-living adjustments helps beneficiaries plan their budgets. Rising healthcare costs often consume a significant portion of the annual increase, leaving less for other expenses.
Beneficiaries can appeal Medicare premium surcharges if their income has decreased significantly due to retirement or other qualifying life events. The Income-Related Monthly Adjustment Amount (IRMAA) determines higher Part B and Part D premiums for beneficiaries with incomes above certain thresholds.
Resources and Additional Information
The Social Security Administration provides detailed COLA information at www.ssa.gov/cola, including historical adjustment data and calculation methodology. Beneficiaries can create a my Social Security account at www.ssa.gov to access personalized benefit information and COLA notices online.
The Bureau of Labor Statistics publishes monthly CPI-W data at www.bls.gov, allowing beneficiaries to track inflation trends throughout the year. The Medicare website at www.medicare.gov offers information about Part B premiums and enrollment options.
