5 Critical Facts About Social Security COLAs Every Retiree Should Know

Social Security benefits are a lifesaver for millions of retirees, but the benefits become less valuable as prices continue to rise. Those monthly checks don't go as far when groceries, gas, and seemingly everything else are more expensive now than even just a few years ago.

That's why Social Security has an annual cost-of-living adjustment (COLA) to help offset some of the effects of inflation. The COLA system isn't perfect, but it's better than nothing. I'm sure the nearly 57 million people who receive retirement benefits would agree, too.

If you're a current retiree or nearing retirement, here are five things you should know about Social Security's COLA.

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1. The COLA isn't based on the standard inflation metric

The annual COLA is based on changes in inflation, but it's not the standard inflation number usually reported on the news. The standard inflation number is the Consumer Price Index (CPI-U), but Social Security uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

They both track prices of goods and services such as housing, food, and clothing, but the CPI-W only looks at households where most income comes from clerical or hourly work. While the CPI-U includes around 93% of the population, the CPI-W includes around 29%. Typically, CPI-U numbers come in higher than CPI-W numbers.

2. Only the third-quarter inflation numbers matter with the COLA

Social Security doesn't look at inflation numbers throughout the year; it only looks at July, August, and September (Q3). To see it in action, let's look at the three-step process for setting the annual COLA:

1. Average the CPI-W for Q3 of the current year.
2. Compare it to last year's Q3 CPI-W average.
3. Set the upcoming COLA as the percentage increase, rounded to the nearest tenth of a percent.

For example, the Q3 average in 2025 was 2.8% higher than in 2024, which is how we arrived at this year's 2.8% COLA. The 2024 average was 2.5% higher than in 2023, resulting in a 2.5% COLA in 2025.

3. A COLA will never reduce benefits

Sometimes, CPI-W numbers for one year are lower than the previous year. Luckily, Social Security will never reduce your benefit when this happens. It can only be increased.

This doesn't happen often, but it has happened in 2010, 2011, and 2016.

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4. Medicare can cut into your benefits boost from the COLA

Social Security and Medicare are two separate social programs, but they're linked because many Social Security recipients have their Medicare Part B premiums automatically deducted from their Social Security benefits.

There's a chance that Part B premiums can increase and offset some of the boost you received from your COLA -- which was the case to begin this year.

If someone's Social Security benefit was $2,000 in 2025, they would've received $56 more this year after the 2.8% COLA. However, Part B premiums increased by $17.90 to $202.90, meaning they really only received $38.10 in extra benefits.

5. The annual COLA hasn't fully kept up with inflation

Despite annual increases in benefits, retirees' Social Security checks aren't going nearly as far. According to The Senior Citizens League (TSCL), a bipartisan senior advocacy group, Social Security benefits have lost 20% of their purchasing power since 2010. That means $100 back then could only buy $80 worth of items today, which, needless to say, isn't ideal.

There isn't a single solution to fixing this other than just increasing benefits beyond the COLA, but that has long-term problems and will deplete the Social Security fund much faster. However, some people have suggested using a different metric to determine the COLA, such as the CPI for people aged 62 and older (CPI-E).

There aren't any signs of the process changing, so right now, retirees will have to, unfortunately, adjust accordingly.

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