US Social Security benefits serve as the financial backbone for nearly 57 million retirees who rely on these payouts. However, over time, these benefits start becoming inadequate as prices continue to rise.
These monthly payouts don’t seem to go as far when groceries, gas, and seemingly everything else are more expensive than they were just a few years ago, USA Today reported. For this reason, the US Social Security programme has an annual cost-of–living-adjustment (COLA), which helps offset some of the effects of inflation.
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The report suggests that while the COLA system isn’t perfect, it is still better than nothing.
Here are five things to know about Social Security’s COLA:
1. The COLA is not based on the standard inflation metric, but rather on changes in inflation. The standard inflation number is the Consumer Price Index (CPI-U). However, the US Social Security uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). While both CPI-U and CPI-W track prices of goods and services such as housing, food, and clothing, only CPI-W looks at households where most income is generated from clerical or hourly work. Additionally, while the CPI-U includes roughly 93% of the population, the CPI-W, on the other hand, includes 29%. Typically, CPI-U numbers come in higher than CPI-W numbers.
2. Social Security does not consider inflation numbers throughout the year; instead, it only looks at them in the third quarter (July, August, and September). To understand this better, here’s a three-step process for setting the annual COLA:
– Average the CPI-W for Q3 of the current year.
– Compare it to last year’s Q3 CPI-W average.
– Set the upcoming COLA as the percentage increase, rounded to the nearest tenth of a percent.
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For instance, the Q3 average in 2025 was 2.8% higher than in 2024, which is how we reached this year’s 2.8% COLA. The 2024 average was 2.5% higher than 2023, marking a 2.5% COLA in 2025.
3. It is worth noting that sometimes, the CPI-W numbers for a particular year would be lower than the previous year. However, Social Security will not reduce benefits in such a scenario. The benefits can only be increased. While this doesn’t happen often, it has happened in 2010, 2011, and 2016.
4. While Social Security and Medicare are two different social programmes, they are linked because many Social Security beneficiaries have their Medicare Part B premiums automatically deducted from their Social Security benefits. The report suggests that there could be a possibility that Part B premiums can increase and offset some of the benefits that beneficiaries might have received from COLA, which happened earlier this year.
For instance, if a person’s Social Security benefit was $2,000 in 2025, in 2026, they would have received $56 more after the 2.8% COLA. However, with Part B premiums being increased by $17.90 to $202.90, it would suggest that they really only received $38.10 in extra benefits.
5. Despite seeing annual increases in benefits, the Social Security checks for retirees aren’t going as far as they could. 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.
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While there isn’t a single solution to fix this, apart from increasing benefits beyond the COLA, which has long-term problems and would 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).
