When you receive benefits from Social Security or Supplemental Security Income (SSI), you may have heard about the term “COLA” or cost-of-living adjustment.
This yearly increase helps your benefits keep up with inflation so that your purchasing power does not erode over time.
Understanding how COLA is calculated, when it takes effect, and what it means for your benefit amount is important for planning and budgeting.
What is the Social Security cost-of-living adjustment (COLA)?
The cost-of-living adjustment is an automatic increase to Social Security and SSI benefits that reflects inflation.
According to SSA’s fact sheet, the adjustment is applied when the price index used (the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W) rises year over year.
The purpose is to maintain the purchasing power of benefits for millions of Americans.
How is the COLA for Social Security calculated?
The calculation starts with the CPI-W, published by the Bureau of Labor Statistics (BLS).
SSA compares the average CPI-W for the third quarter (July, August, September) of the year prior to the most recent third quarter.
If there is an increase, the percentage increase becomes the COLA for benefits payable the following year.
For example, for the 2025 benefit year, the CPI-W rose from the third quarter of 2023 to the third quarter of 2024, triggering a COLA of 2.5 %.
Who receives the cost-of-living adjustment increase?
Almost all benefit types covered by Social Security receive the COLA when one is declared.
That includes retirement benefits, disability insurance (SSDI), survivor benefits, and SSI payments for those eligible.
You do not need to apply for the increase, it is applied automatically.
When does the cost-of-living adjustment take effect?
The benefit increase generally becomes effective with benefits payable in January of the following year.
For the 2025 COLA, SSA states the increase is effective with the December 2024 benefit paid in January 2025.
For SSI payment recipients, since those payments are made on the 1st of each month (or the last business day before), the adjustment may apply starting with the payment for January 2025.
How much is the cost-of-living adjustment increase for 2025?
SSA announced that the COLA for 2025 is 2.5% for Social Security and SSI benefits.
To put that in perspective, if a retiree’s benefit was on average about $1,927 in 2024, with a 2.5% increase, it would rise to roughly $1,976 in 2025.
Why does the cost-of-living adjustment matter for you?
If you rely on Social Security or SSI for a portion of your income, even a modest increase like 2.5% can help with rising costs of food, housing, utilities, and medical care.
Even so, because costs in these categories may rise more quickly than the CPI-W used for calculation, the increase may not fully match individual inflation experiences.
Also, other thresholds tied to Social Security (like the maximum earnings subject to tax, or the retirement earnings test exempt amount) often increase when a COLA is declared.
What you shouldn’t assume about COLA?
- A COLA is not guaranteed every year. If the CPI-W does not rise (or rises by less than a small threshold), there may be no increase.
- The COLA applies to benefit amounts, but it does not directly affect how your benefit is calculated or your eligibility for Social Security.
- A COLA does increase the headline benefit amount, but if your other costs (especially healthcare) rise faster, you might still experience a reduction in real purchasing power.
- States may treat Social Security benefits differently for tax purposes, even if the federal COLA applies.
