Around 69 million Americans will receive a Social Security check this year, and for many, these benefits are a lifeline. Eighty-eight percent of current retirees say they depend on their monthly checks to some extent, according to a 2024 poll from Gallup, with 60% of that group saying Social Security is a "major" source of income.
The cost-of-living adjustment (COLA) is designed to help benefits maintain their buying power over time. Every October, the Social Security Administration announces the upcoming year's COLA. While we still have some time before we'll know the 2026 adjustment, there are a few things every retiree should know right now.
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1. COLAs affect all Social Security recipients
Retirees are the largest group of people eligible for benefits, but the COLA affects everyone collecting any type of Social Security -- such as disability benefits, spousal benefits, and survivors benefits.
It also affects those who are at least 62 years old but haven't starting taking benefits yet. The COLA will increase your full benefit amount, or the amount you'll receive by filing at your full retirement age. Even if you plan to work for a few more years before claiming, your expected benefit will increase with each COLA.
How much you'll receive depends on your benefit amount, as the COLA is a percentage increase that you'll collect on top of your standard benefit. The average retired worker collects around $1,981 per month from Social Security, as of February 2025. So if the COLA is 2.5%, for example, the average retiree would collect an extra $50 per month, approximately.
2. They are based on changes in inflation
The COLA is based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a monthly snapshot of consumer spending released by the Bureau of Labor Statistics.
The Social Security Administration only includes third-quarter CPI-W data to calculate the COLA. It takes an average of the CPI-W values for the months of July, August, and September, then compares that figure to the same calculation from the year before. If the current year's figure is higher, the percentage increase will be the COLA. If it's lower, there will be no COLA.
You don't necessarily need to know all the ins and outs of the COLA calculations, but it is important to remember that it's directly affected by inflation. The higher the inflation rate, in general, the higher the COLA will be.
While it may sound counterintuitive, lower COLAs are generally a better sign for retirees. A lower COLA signals that inflation has been slowing year-over-year, which will often have a bigger impact on beneficiaries' bottom lines than slightly larger checks each month.
3. They're not as dependable as they used to be
Although the COLA is directly tied to inflation, the annual adjustments have struggled to keep up with rising costs in recent years.
In fact, despite annual raises, Social Security benefits have lost around 20% of their buying power over the last 15 years, according to a report from nonpartisan advocacy group The Senior Citizens League. Since 2020, only one COLA has actually managed to outpace inflation -- and that was the 8.7% adjustment in 2023, the highest COLA in roughly four decades.
If you're relying on Social Security to make ends meet, it may be wise to keep your expectations in check when it comes to the COLA. While an extra $50 or so per month can go a long way, these adjustments haven't managed to provide as much relief as they should to beneficiaries, historically.
The COLAs themselves may be out of your control, but when you know the basics of how they're calculated and what to expect, it can be a little easier to adjust your financial strategy in retirement -- whether that's simply spending less or picking up an additional income source. This is now more important than ever, as many aspects of Social Security are not as reliable as they once were.
By taking steps to plan now, you'll be more prepared by October when the 2026 COLA is announced.
