For a significant portion of the American population that relies on Social Security income, cost-of-living adjustments (COLAs) represent more than mere numerical figures. These annual adjustments play a critical role in ensuring that benefits align with inflationary trends, thereby aiding beneficiaries in managing their everyday financial obligations amidst dynamic economic conditions. The impending 2025 COLA increase is a pivotal development with a direct impact on the financial stability of retirees.
While the official announcement regarding the exact COLA adjustment for 2026 won’t take place until October 2025, current forecasts predict another 2.5% COLA adjustment to take effect in January 2026. A 2.5 percent COLA raise for 2026 would reflect a continuation from 2025, which raised the COLA 2.5% last January. COLA preserves purchasing power by adapting benefits for inflations. While another 2.5 percent COLA adjustment will offer relief to Social Security beneficiaries living on fixed incomes, such an increase is still lower than average. For the last 50 years, the average COLA adjustment has been 3.4%.
Understanding Cost-of-Living Adjustments (COLA)
The Cost-of-Living Adjustment (COLA) is an annual increase in Social Security benefits, including SSI benefits, which helps beneficiaries keep up with rising inflation. As the cost of goods and services increases, the annual COLA adjustment helps the disabled and retirees maintain their purchasing power. COLA adjustments go into effect in January every year for Social Security retirees and Social Security Disability Insurance. For SSI beneficiaries, the COLA 2025 increase goes into effect on December 31, 2024. The COLA rate is determined by comparing inflation data across the months of July, August, and September compared to the third quarter of the previous year. The wage data for urban wage earners and character workers is used for the calculation based on the consumer price index. This data is based on spending data from the prices paid for goods and services by these urban workers.
COLA impacts a whopping 72.5 million Americans each year across the retirement and disability systems.
The 2025 COLA Increase Details
When Social Security announced the 2025 COLA in October 2024, the 2.5% increase was the smallest in over a decade since 2011. For comparison, the COLA increase for 2024 was 3.2%, closer to historical trends. This year’s COLA increase only increased benefits checks by an average of 48 dollars. As the costs of basic goods such as groceries, insurance, rent, and transportation increase, especially in high-cost-of-living places such as the Bay Area, the 48-dollar increase does not go very far. Even crossing the Bay Bridge now costs $8. If the 2026 increase is in fact the same as the increase was for this year, residents in California will still be paying the high prices that come with living in an extremely expensive state.
Factors influencing the 2025 adjustment
The decision for a 2.5% COLA increase in 2025 is largely attributed to recent inflation trends, which have cooled compared to the preceding years. The calculation of this adjustment heavily relied on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) data from July to September. These groups reflect 28% percent of the United States population, so the data is based on a statistically significant sample size. When COLA was implemented in the 1970s, inflation ranged from 3 percent to a massive 11 percent, so the increase in Social Security benefits was much higher than current trends.
Cash and SNAP benefit adjustments
The 2025 Cost-of-Living Adjustment (COLA) is not limited to Social Security and SSI beneficiaries alone. It also extends to recipients of SNAP benefits, with adjustments that took effect from January 1, 2025. These adjustments are designed to assist beneficiaries in coping with inflation and rising living expenses for necessities such as food.
When Social Security releases the COLA adjustment in October 2025 we will publish a new blog with the 2026 COLA percentage.
FAQs
The official COLA for 2025 is 2.5 percent. The official 2026 Cost-of-Living Adjustment (COLA) has not yet been announced. It is typically released by the Social Security Administration in October, based on third-quarter inflation data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Early projections suggest an increase of approximately 2.5%,
The 2025 COLA took effect in January 2025 for SSDI beneficiaries and retirees, in December 2024 for SSI beneficiaries.
COLA directly increases your monthly Social Security payments to help offset inflation. For example, if you receive $1,800 a month and the COLA is 3%, your benefit would increase by $54, totaling $1,854 per month.
The COLA is based on inflation trends in the third quarter of the year Higher inflation means a larger adjustment, while lower or flat inflation may result in a smaller or even zero increase.
Yes, COLA changes can impact Supplemental Security Income (SSI) and SNAP benefit levels.
