What is the Social Security COLA? How is the COLA calculated? How did the COLA come about? Does the COLA keep up with inflation? Do Medicare premiums wipe out the COLA?

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How the COLA Affects Social Security Benefits

The annual cost-of-living adjustment is designed to help older adults maintain their purchasing power even as prices tick up

5-minute read

Part of Series: Retirement Benefits

Deirdre Shesgreen,

AARP

Expert reviewed by

Stephen Richardson

Published October 12, 2026

Deirdre Shesgreen is an AARP writer and editor covering Social Security. She previously worked as a state news editor for the AARP Bulletin and as a reporter and editor at USA Today, the St. Louis Post-Dispatch and other publications.

Stephen Richardson is a retired New England regional communications director for the Social Security Administration and AARP consultant on Social Security benefit issues. He began his career with the agency in 1982 as a claims representatives.

Key takeaways

Social Security’s annual COLA provides millions of retirees with their only source of inflation-protected income.
Announced every October and applied the following year, the adjustment is based on year-over-year changes in a key inflation index.
COLAs help retirees maintain purchasing power over time, but Medicare premiums and periods of price volatility can dilute their short-term impact.

For many retirees, Social Security is their only source of inflation-protected income. The announcement each fall of the coming year’s cost-of-living adjustment (COLA) is major news, providing a key element in older Americans’ budget planning.

Because it provides a hedge against rising prices, the COLA is considered one of the Social Security’s most important features. Here’s what you need to know about how the COLA is calculated, how it came about and how well it cushions beneficiaries from inflation’s impact.

What is the Social Security COLA?

The COLA is an annual adjustment in Social Security recipients’ monthly payments. It applies not just to retired workers, who make up more than three-quarters of beneficiaries, but also to qualifying family members and survivors, and to people sidelined from work by disability.

The Social Security Administration (SSA) announces the COLA in October, and it takes effect with December’s Social Security payments (the ones sent out in January).

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How is the COLA calculated?

The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, an inflation gauge tracked by the U.S. Bureau of Labor Statistics. The CPI-W measures price fluctuations across a range of everyday goods and services, such as groceries, housing, health care, transportation and apparel.

To determine the COLA, the SSA compares the CPI-W for July, August and September of the current year with the same period the year before; the difference between the two becomes the following year’s COLA.

For example, the 2026 COLA of 2.8 percent represents how much the CPI-W rose from the third quarter of 2024 to the third quarter of 2025. That marked a modest jump from the 2025 COLA of 2.5 percent.

Social Security payments increase only if there is a measurable rise (at least 0.1 percent) in the CPI-W from year to year. If inflation is negligible or nonexistent, there’s no cost-of-living increase. That has happened a handful of times, most recently in 2016.

How did the COLA come about?

Before 1975, it took an act of Congress to adjust Social Security benefits for inflation. This happened periodically but not annually.

“[COLAs] were scattershot and happened at different points in time,” says Andrew Eschtruth, director of the Center for Retirement Research at Boston College. “So it wasn’t something reliable.”

In the late 1960s and early ’70s, soaring inflation was quickly eroding the purchasing power of fixed pensions and benefits. In 1972, Congress voted to make the COLA annual and automatic as part of a set of amendments to the Social Security Act, the 1935 law that established the program. Automatic COLAs began in 1975; the first boosted benefits by 8 percent.

The largest annual COLA came in 1980, when benefits rose 14.3 percent. An 11.2 percent increase followed in 1981.

The first two decades of the 21st century saw mostly modest COLAs, averaging just over 2 percent per year, with no benefit increase at all for 2010, 2011 and 2016. That changed in the early 2020s as surging prices, notably for food and fuel, produced the largest adjustments since the early 1980s — 5.9 percent in 2022 and 8.7 percent in 2023. The COLAs dipped to 3.2 percent in 2024 and 2.5 percent in 2025 as inflation cooled.

“The automatic COLA is one of the most valuable features of Social Security, and it actually sets Social Security apart,” Eschtruth says. “There are very few other forms of income in retirement that have that same kind of inflation protection.”

Does the COLA keep up with inflation?

In the long term, yes, but in the short term it doesn’t always appear to. Because one year’s COLA reflects the prior year’s price trends, there can be a delay in the impact on retirees’ purchasing power.

“[COLAs] are always after-the-fact adjustments,” says Teresa Ghilarducci, a professor of economics and policy analysis at the New School for Social Research in New York City. “Seniors absorb higher prices throughout 2026 and must wait until January 2027 for their Social Security benefits to catch up.”

Do Medicare premiums wipe out the COLA?

No, but they can have an impact. If your Medicare Part B premiums are deducted from your Social Security — as is the case with about 70 percent of Part B enrollees — a Medicare rate increase could partially offset the COLA. (Part B is the portion of Medicare that covers outpatient treatment such as doctor visits.)

For example, in 2026 the 2.8 percent COLA boosted the average retirement benefit by about $56 a month, from $2,015 to $2,071, according to the SSA. But the standard monthly Part B premium went up by 9.7 percent, from $185 to $202.90, effectively reducing the COLA for that average retiree to about $38 per month.

Social Security payments generally cannot decrease from one year to the next due to Medicare premium hikes. That’s because of Social Security’s “hold harmless” rule, which applies to people who pay the standard Part B premium and have it deducted from their Social Security benefits.

Under “hold harmless,” if the dollar amount of the Medicare premium hike exceeds that of the Social Security COLA, covered beneficiaries would pay less than the standard Part B rate to ensure their Social Security payment doesn’t go down. The rule does not apply to Social Security recipients who:

Are in their first year of Medicare coverage.
Pay Medicare directly for coverage.
Pay more than the standard Part B premium because they are higher-income beneficiaries.
Are also enrolled in Medicaid and receive a state subsidy for Medicare premiums.

The key takeaways were created with the assistance of generative AI. An AARP editor reviewed and refined the content for accuracy and clarity.

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