Do You Understand These 3 Critical Facts About Social Security COLAs?

Key Points

• Social Security COLAs help retirees keep up with inflation over time.

• There is a lot about COLAs that many seniors don’t understand, such as how they’re calculated.

• The inflation metric used in the COLA calculation might not be the best to use for seniors.

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

Social Security cost of living adjustments, or COLAs, help retirees, spouses, disabled workers, and more keep up with inflation-driven price increases over time. For example, Social Security beneficiaries received a 2.5% increase, beginning with the payment received in January 2025.

While most people who collect Social Security understand some of the basics about COLAs -- they start each January and they're based on inflation, for example -- there are some important details that most Americans don't know. With that in mind, here are three critical facts about Social Security COLAs that everyone who receives benefits, or will receive them in the future, should be aware of.

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1. Social Security COLAs are determined by just three months of data

It might surprise you to learn that the Social Security COLA is based on just three months of inflation data. Specifically, the annual adjustment is determined by comparing prices in the third quarter of two consecutive years.

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In other words, the 2026 COLA will be determined by looking at the consumer price index (CPI) in July, August, and September of 2025, and comparing it with the same three-month period from 2024. The percentage change year-over-year will determine the COLA.

This is why the COLA is announced in mid-October each year. The monthly inflation reports are released a couple of weeks after the end of each month, so the September report that is needed to determine third quarter inflation will be released in October, and that's when the COLA can be made official.

2. The COLA inflation metric might not be the most accurate

The specific version of the CPI used to determine inflation for Social Security purposes is the CPI-W, which is the Consumer Price Index for Urban Wage Earners and Clerical Workers.

This inflation index isn't necessarily designed to track cost increases on retirees. After all, the name makes it clear that this is an inflation metric designed to assess the cost of living for workers.

There is a senior-focused inflation metric called the CPI-E, which places more weight on costs that disproportionately impact older Americans, such as inflation. There have been some legal efforts to make this the Social Security COLA inflation metric, but so far none have been successful.

3. COLAs cannot be negative

As mentioned, the annual COLA is determined by comparing this year's third quarter CPI-W data with that of last year. But what happens if prices go down? If we have a negative inflation rate, known as deflation, does that mean your Social Security benefits will be lower next year?

Fortunately, the lowest a Social Security COLA can be under current law is 0%. This is even true in times of deflation. We have seen this several times in the modern era, including a deflationary period in 2009 after the financial crisis. But even in cases like this, Social Security benefits won't be lowered.

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Over the past decade, the Social Security COLA has provided beneficiaries with a 2.6% average increase each year, although this has been as low as 0% and as high as 8.7%, depending on inflation. The latest estimates call for a 2026 COLA of 2.7%, although as mentioned, we won't know for sure until we see third quarter inflation data.

While the system isn't perfect, Social Security COLAs certainly help retirees and other Social Security recipients keep up with rising costs over time. And the more you know about how they work, the better positioned you'll be to know what to expect and make financial decisions accordingly.

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