How does Social Security calculate the COLA?

Your Social Security payment typically is adjusted annually for inflation to ensure that the purchasing power of benefits is not eroded by rising prices. This cost-of-living adjustment, or COLA, tracks inflation using a government measure of consumer prices for a variety of household goods and services.

Benefits go up if there is a measurable increase (at least 0.1 percent) in this price index from year to year. For 2025, the cost-of-living adjustment will be 2.5 percent, boosting the average Social Security retirement benefit by $49 a month starting in January, according to the Social Security Administration (SSA).

The COLA is based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), an inflation measure tracked by the U.S. Department of Labor. The SSA compares the CPI-W for July, August and September of one year to the same period the year before. The average percentage change in the index over those three months determines the amount of the COLA.

For example, the benefit adjustment was set at 2.5 percent for 2025 because that’s how much the CPI-W rose from the third quarter of 2023 to the third quarter of 2024. That marked a modest decrease from the 2024 COLA of 3.2 percent. Significantly hotter inflation during the COVID-19 pandemic boosted benefits by 5.9 percent in 2022 and 8.7 percent in 2023, the biggest COLAs in 40 years.

Keep in mind

• A COLA increase is not guaranteed. If there is no inflation in a given year, there will be no cost-of-living adjustment to benefits the following year. This has happened a handful of times, most recently in 2016.
  
• When there is a cost-of-living increase, you might not see all of it in your benefit payment. If your Medicare Part B premiums are deducted from your Social Security, as is the case with 70 percent of Part B enrollees, a Medicare rate increase could offset the COLA.