When you file for Social Security benefits or Supplemental Security Income (SSI), your lifetime earnings help determine the amount of your monthly retirement benefit. That amount is not fixed for the rest of your life.
Your Social Security benefits increase over time to help keep pace with inflation or the cost of living. This annual increase is called the cost-of-living adjustment, or COLA.
Congress authorized cost-of-living adjustments in 1973 and first applied them in 1975. These adjustments ensure that Social Security and SSI benefits keep pace with changes in the price level. Before 1975, benefits were only changed through specific legislation.
Impact of COLA on Social Security Benefits
Cost-of-living adjustments are based on changes in inflation. When inflation rises, Social Security benefits are typically increased in the following year. If inflation changes little or not at all, there may be no COLA.
For 2026, Social Security and SSI benefits will increase by 2.8 percent. This increase affects nearly 71 million beneficiaries and begins with payments issued in January 2026. SSI recipients see their first adjusted payment on December 31, 2025 for the year ahead.
For example, if the average monthly Social Security benefit was about $2,015 in 2025, applying a 2.8 percent COLA would raise that average to approximately $2,071 in 2026.
How COLA Is Calculated
Cost-of-living adjustments are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This official inflation measure is calculated monthly by the Bureau of Labor Statistics and reflects changes in prices for a broad range of goods and services.
The Social Security Administration compares CPI-W figures from one period to another to determine whether inflation has risen enough to justify a benefit increase. If the index rises, a COLA is applied. If it stays the same or falls, there may be no adjustment.
Limitations and Criticisms of the Current Method
The current method for calculating COLA has drawn criticism from some policy analysts. One concern is that the CPI-W reflects the spending habits of urban wage earners and clerical workers rather than the typical retiree. Retirees may spend a larger share of their income on healthcare, prescription drugs, and other costs that rise faster than general inflation.
Another issue is that the CPI-W does not always capture changes in consumer behavior. For example, if the price of one good rises sharply and people substitute other goods, the index may not fully reflect the impact on household expenses. Some experts argue that a different index, such as one that better reflects seniors' spending patterns, could yield a COLA that more accurately reflects retirees’ actual cost increases.
Congress could change the way COLA is calculated in the future, but such changes would require legislative action. To date, the Social Security Act still ties annual adjustments to the CPI-W.
How COLA Affects SSI and Other Benefits
In addition to retirement benefits, the COLA also applies to SSI and Social Security disability benefits. SSI payment amounts for 2026 reflect the same 2.8 percent increase and vary based on living arrangements and other factors.
Takeaway
The cost-of-living adjustment helps protect Social Security and SSI benefits from losing value when prices rise. For 2026, benefits are increasing by 2.8 percent, which should result in a noticeable increase in monthly payments for most beneficiaries.
Understanding how COLA works can help you plan your retirement income and anticipate changes in your Social Security benefits each year.