Guide to Social Security Cost-of-Living Adjustments (COLAs)

While no one can predict the future with certainty, some trends remain consistent over time. Prices generally rise, which increases the overall cost of living. Inflation affects workers, but it can have an even greater impact on retirees who rely on fixed incomes. For those receiving Social Security, the federal government applies cost-of-living adjustments (COLAs) to help benefits keep pace with rising prices. Employers also often factor in cost-of-living changes when adjusting employee wages.

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What Is a Cost-of-Living Adjustment (COLA)?

Broadly speaking, a cost-of-living adjustment, or COLA, is a change to a recurring payment – such as a retirement benefit or salary – that reflects a concurrent shift in the cost of goods and services. The details of every COLA will depend on the type of payment they’re affecting.

Perhaps the most notable COLA is the one that takes place annually impacting Social Security retirement benefits and Supplemental Security Income (SSI). The Social Security Administration (SSA) announces the coming adjustment in the third quarter of every year. This makes sure that Social Security recipients have the same amount of purchasing power year over year.

Another type of COLA is used by employers. If you work at a company that offers annual raises, you may have a COLA included in them, or at least considered when the employer establishes raises for its employees. You could even think of rising tuition prices at universities as a form of a COLA, albeit one that’s in favor of the university’s income rather than yours. No matter the form they take, gradually rising prices and inflation are facts of life, which COLAs exist to counteract.

How Are Cost-of-Living Adjustments Calculated?

It’s important to note that not all COLAs are calculated in the same way. At your job, for instance, your employer can calculate its adjustment however it sees fit. Some COLAs, especially those that are applied to government benefits, have consistent methodologies.

The cost-of-living adjustment that the SSA implements for Social Security and SSI is derived from a variation of the Consumer Price Index (CPI) called the Consumer Price Index For Urban Wage Earners And Clerical Workers (CPI-W).

The CPI is a metric used by the Bureau of Labor Statistics (BLS) to measure prices on more than 80,000 goods and services. The BLS looks over all of these goods and services and distills the price into a single number to come up with the CPI.

There are a few different variations of the CPI, and the CPI-W is one of them. This version specifically looks at prices that impact certain demographics. Specifically, it considers households where at least 50% of the household income comes from clerical or wage-paying jobs and at least one of the household’s earners has been employed for at least 70% of the year.

COLAs for Social Security and SSI adjust by taking the CPI-W from the third quarter of the previous year and applying it in the third quarter of the current year. If the CPI-W doesn’t increase for whatever reason, then there won’t be a COLA for that quarter.

How to Find Out How Much Your COLA Will Be

If you receive Social Security payments, you are likely curious about what kind of increase to expect. The federal government releases its COLA amounts and methodology online through the SSA’s website. The SSA updates this information regularly, so feel free to check back as often as you’d life.

According to the SSA website, here are the annual Social Security COLAs for the last five years:

2025 Social Security COLA: 2.8%
2025 Social Security COLA: 2.5%
2024 Social Security COLA: 3.2%
2023 Social Security COLA: 8.7%
2022 Social Security COLA: 5.9%
2021 Social Security COLA: 1.3%

For employees wondering if their company offers COLAs, check with your direct supervisor or human resources department for more information. Because COLAs are calculated differently on a company-to-company basis, there’s no telling what you may or may not be in line to receive.

Bottom Line

Inflation plays a natural role in a healthy economy, but purchasing power declines when income fails to keep up. Cost-of-living adjustments (COLAs) help prevent that erosion by allowing income to rise alongside prices. The Social Security Administration applies COLAs to help preserve the value of retirement benefits, and some employers also use them to maintain fair employee wages.

Tips for Navigating Social Security

A financial advisor can help you with Social Security and retirement income planning. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
COLAs are used to account for inflation, which can be a difficult concept to wrap your head around. But inflation is unavoidable, so you should have an idea of how it will affect your money. You can use SmartAsset’s inflation calculator to help track what your money will be worth in the future.