3 Things Retirees Should Know About Social Security COLAs

Key Points

• Many retirees rely on their Social Security COLAs to keep up with their expenses.

• Although COLAs are set up to happen automatically, they're not guaranteed.

• Just because they're supposed to keep up with inflation doesn't mean they actually do.

• The $23,760 Social Security bonus most retirees completely overlook ›

There's a lot of buzz these days about Social Security's upcoming cost-of-living adjustment, or COLA. The Social Security Administration is scheduled to make a 2026 COLA announcement in less than a month. And if you're someone who gets benefits, you may be eager to find out how much yours are set to increase.

Whether you're new to Social Security or have been getting benefits for years, there are a few things about the program's COLAs you may not be aware of. Here are three things you should know about Social Security COLAs.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

1. They're automatic

Prior to 1975, in order for Social Security benefits to get a raise, lawmakers had to vote one in. Since 1975, Social Security COLAs have been automatic. If there's an uptick in inflation from one year to the next, benefits go up.

2. They're not guaranteed

Just because Social Security benefits are eligible for a yearly COLA doesn't mean that they go up every year. If inflation doesn't increase, or if it decreases from one year to the next, Social Security benefits don't get a bump.

Since COLAs became automatic, there have been three years when Social Security recipients got no raise at all. Thankfully, when there's a decrease in inflation from one year to another, Social Security benefits simply stay where they are. There's no such thing as a negative COLA.

In fact, thanks to a hold harmless provision, Social Security benefits can't even decrease from one year to the next year due to the combination of a small or non-existent COLA and a Medicare Part B premium hike.

Seniors who are on Medicare and Social Security at the same time pay their Part B premiums out of their benefits directly. But a rise in the cost of Part B can't reduce a Social Security benefit from one year to the next.

3. They've caused seniors to fall behind

Although the purpose of Social Security COLAs is to help ensure that seniors can keep up with inflation, those COLAs often fail to live up to that promise. In fact, the Senior Citizens League, an advocacy group, found that between 2010 and 2024, Social Security recipients lost 20% of their buying power.

Part of the problem is that Social Security COLAs are not calculated based on a senior-specific index. Instead, they're calculated based on changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers, which is generally not a good reflection of the costs seniors on Social Security face.

Because COLAs have historically done such a poor job of keeping pace with inflation, workers today should take a lesson and save for retirement on their own. The right investments could do a much better job of beating inflation than Social Security COLAs.

There's lots to know about Social Security, and that extends to the program's COLAs. Read up on them and other facets of the program, whether you're a current beneficiary or you're trying to plan well for a retirement that's years down the road. The more information you have, the better you can manage your finances once your career comes to an end.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.