Social Security COLA: What It Is, How It’s Calculated
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What is the Social Security 2025 COLA increase?
The Social Security cost-of-living adjustment (COLA) for 2025 will be 2.5%. In 2024, the Social Security COLA was 3.2%, and in 2023, at the height of pandemic-fueled inflation, it was 8.7%. A cost-of-living adjustment (COLA) is a change in benefits based on changes in the prices of goods and services. The Social Security Administration calculates and applies COLAs annually to beneficiary payments.
The Social Security 2025 COLA increase will take effect in January 2025 and will translate to an average increase of $50 per month for people receiving Social Security retirement benefits. The Social Security COLA also affects Social Security Disability Insurance (SSDI) payments and Supplemental Security Income (SSI) payments.
What will the Social Security COLA increase be in 2026?
The 2026 Social Security COLA is due to be announced in October 2025 and will take effect in January 2026.
The SSA usually announces the COLAs in October. The agency calculates COLA following the end of the third quarter each year.
How does the Social Security Administration calculate a COLA?
A Social Security COLA is based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). A consumer price index tracks how the price of consumer goods and services changes over time.
This specific index focuses on categories of goods and services that are most likely to affect families earning at least half their income from hourly-wage or clerical jobs.
An increase in the CPI-W indicates that inflation is on the rise. And that means the SSA needs to adjust benefit payments to help recipients afford basic expenses.
To calculate a COLA, the SSA compares the average CPI-W for the third quarter of the current year to the average CPI-W for the third quarter of the last year when a COLA was approved.
If the average CPI-W has increased by more than a tenth of 1%, the SSA will approve a COLA, meaning it will increase benefits.
Your benefit increases by the percentage change in the average CPI-W. So if the average CPI-W increases by 3.1%, your benefit increases by 3.1%.
If there is no change in the average CPI-W, or the CPI-W rate actually decreased, the SSA will not approve a COLA.
Social Security COLAs are usually announced in October. Watch the news for an update so you can plan ahead for future payments.
How does a COLA apply to Social Security payments?
The Social Security COLA applies to a person’s primary insurance amount (PIA), which is the monthly retirement benefit a person receives if they apply for benefits at full retirement age. Retiring early or delaying retirement can change the amount of your PIA.
