10 Crucial Things To Know About the Social Security COLA

Each year, the Social Security Administration reevaluates its monthly payment amounts and adjusts them to account for inflation. This annual change is called the Social Security cost-of-living adjustment, or COLA. 

If you're a retiree on a fixed income who is trying to stretch your retirement dollars further, the annual COLA can have major consequences for your bottom line.

Here's everything you need to know, from what the COLA is, how high 2026's increase is, and much more.

Starting in the 1970s, the Social Security Administration (SSA) decided to adjust monthly Social Security benefit payments to account for the year's cost-of-living increase.

This cost-of-living adjustment (COLA) applies to every Social Security recipient, so whether you're planning for retirement or already retired, your Social Security payment will change from year to year based on the COLA.

Before 1975, the Social Security cost-of-living adjustment was determined by Congress and happened only once in a while rather than once a year. After 1975, adjustments were left to the SSA and based on the Consumer Price Index.

The SSA determines the year's COLA by looking at the Consumer Price Index (CPI), which is tracked by the Bureau of Labor Statistics and calculates how much the average price of standard services and goods changes month over month. 

Specifically, the COLA is based on the CPI-W, or the CPI for Urban Wage Earners and Clerical Workers.

The CPI-W is a narrower measurement than the more commonly used CPI-U, a broader measurement that considers price increases for urban consumers generally. 

In contrast to the CPI-U, the CPI-W focuses on price increases that impact hourly and clerical workers in areas like food and transportation. It doesn't focus quite as much on health care or housing costs.

The COLA for 2025 was 2.5%. This increase meant that payments rose by an average of about $50 per month. Monthly payments averaged about $1,976 for single individuals and $3,089 for married couples, where both spouses are eligible for benefits.

The 2026 COLA increase for Social Security beneficiaries is 2.8%. 

For those under full retirement age, the earnings limit is $24,480, with $1 deducted for every $2 earned above this limit. Individuals reaching full retirement age in 2026 will have an increased earnings limit of $65,160, with $1 deducted for every $3 earned over this threshold.

There is no earnings limit for individuals who are full retirement age or older for the entire year.

Over the last 20 years, the average Social Security COLA was just 2.6%. 

So, while a 2.5% to 2.8% increase pales compared to years like 2023 that had a historic COLA of 8.7%, it's still close to the average.

There can only be a cost-of-living adjustment to Social Security payments if inflation causes a cost-of-living increase for the general American public.

While inflation tends to drive prices up year over year, this wasn't true in 2010, 2011, or 2016. During those three years, Social Security payments stayed the same as the previous year.

Even if the CPI measures a decrease in the overall cost of goods and services for the year, your Social Security benefits won't decrease. At the very least, your benefits will stay the same.

So don't worry about receiving a decreased payment just because prices are dropping at your local grocery store.

Medicare Part B is the section of Medicare that helps retirees pay for routine doctor's visits, outpatient services, at-home medical equipment (like wheelchairs), and preventive care (like vaccinations).

As with other insurance plans, Medicare Part B requires the insured individual to pay a monthly premium. And if you're a retiree receiving Social Security benefits, that premium is typically deducted directly from your benefits check before it winds up in your bank account.

However, just like the general cost of living, Medicare Part B premiums tend to increase over time. This year's premiums went up by 10%, which lessens the impact of the 2.8% COLA increase.

Living on a fixed income is often a challenge, even for seniors who might be doing better financially than others in their age group. 

That's doubly true during unpredictable economic times, including over the last few years when inflation drastically reduced consumers' spending power.

Unfortunately, while a 2.8% increase in Social Security benefits would be a welcome boost, it probably isn't enough to compensate for still-high prices and the mountains of debt Americans took on to cope with inflation last year.

You've likely noticed an increase in your Social Security payments that started in January, which may help boost your bank account in the long run. 

However, with other rising costs like Medicare premiums and inflation, it may be hard to see it as making a huge difference. If you haven't already, now may be the time to reexamine your budget and make changes wherever necessary.