Cost-of-Living Adjustment (COLA)

Key takeaways
* COLA is an annual increase to Social Security and Supplemental Security Income (SSI) intended to offset inflation.
* The increase is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI‑W).
* Automatic yearly COLAs have been in effect since 1975.
* Recent COLAs: 8.7% (2023), 3.2% (2024), 2.5% (2025).

What is COLA?

A cost‑of‑living adjustment (COLA) raises Social Security and SSI benefits to help beneficiaries maintain purchasing power as consumer prices rise. COLA is intended to prevent inflation from eroding the real value of benefits.

How COLA is determined

• The U.S. Bureau of Labor Statistics publishes the CPI‑W, which measures price changes for a representative basket of goods and services.
• The Social Security Administration computes COLA as the percentage increase in the CPI‑W from the third quarter of one year to the third quarter of the following year.
• If the CPI‑W does not increase over that period, there is no COLA for that year.

Historical context

• Congress made COLA automatic in 1975 to protect benefits from the high inflation of the 1970s.
• COLA levels have varied with inflation: the largest COLA was 14.3% in 1980. During the 1990s and early 2000s, lower inflation produced smaller COLAs (often 2–3%). Some recent years had no COLA when prices didn’t rise enough.
• Recent examples: 8.7% (2023), then falling to 3.2% (2024) and 2.5% (2025).

Hold‑harmless provision

The hold‑harmless provision prevents the nominal Social Security benefit for some beneficiaries from dropping when a rise in Medicare Part B premiums would otherwise reduce their net benefit. In practice, this can limit or delay the effect of COLA for those affected; only certain beneficiaries qualify for this protection.

Other types of COLA

• Employers and labor contracts sometimes include COLA clauses that adjust wages based on inflation or local cost differences.
• The U.S. military and some federal employees may receive temporary COLAs for assignments in areas with higher living costs; these payments end when the assignment finishes.

How to calculate your COLA increase (example for 2025)

1. Multiply your current monthly benefit by the COLA rate (for 2025, 0.025).
2. Add that result to your current monthly benefit.

Example: A $10,000 annual benefit in 2024 × 0.025 = $250; new annual benefit for 2025 = $10,250.

Frequently asked questions

Q: Who receives COLA?
A: COLA applies to Social Security beneficiaries and SSI recipients. Its purpose is to preserve purchasing power for those benefits.

Q: When is COLA announced?
A: The Social Security Administration announces the annual COLA after the third‑quarter CPI‑W comparison is finalized.

Q: What happens if prices fall?
A: There is no negative COLA. If the CPI‑W falls or does not rise, beneficiaries simply receive no increase that year.

Bottom line

COLA is the mechanism used to adjust Social Security and SSI benefits for inflation, determined annually by changes in the CPI‑W. It helps protect retirees and other beneficiaries from losing purchasing power when prices rise.