Social Security cost-of-living adjustments, or COLAs, help protect the retirement, disability, and survivors benefits of millions of Americans from the potentially devastating effects of inflation. However, the process by which the annual COLA is calculated isn’t well understood by many people, so let’s take a look at the important details you should know.
It’s also starting to look like the 2026 Social Security COLA could be the lowest in several years, so I’ll take a look at the latest estimate, and why it could change significantly before it is official.
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1. The Social Security COLA is based on third-quarter inflation
One of the most common misconceptions is that the Social Security COLA is based on inflation over a full calendar year. In other words, many people believe the 2025 COLA was based on inflation throughout 2024. But this isn’t the case.
Since 1983, the Social Security COLA has been based on inflation in the third quarter only. In a nutshell, the Social Security Administration (SSA) compares the Consumer Price Index (CPI) data from the months of July, August, and September, with the data from the same months from the prior year.
If you’ve ever wondered why the Social Security COLA is announced in mid-October each year, this is why. Each month’s CPI data is released a couple of weeks after the end of the month, and as soon as September CPI numbers are available, the third-quarter calculation can be done, and the official COLA can be announced. The yearly adjustment is sometimes zero and sometimes an increase, but is never a decrease.
The timing of the data is why it’s difficult to predict what the next COLA is until we start getting some third-quarter data (although we’ll take a look at an educated prediction later).
2. The COLA defines inflation using the CPI-W
There are several different versions of the CPI, and the Social Security COLA is based on an index called the CPI-W, which is the Consumer Price Index for Urban Wage Earners and Clerical Workers. As the name implies, this is an index that is designed to measure inflation as it affects working Americans, and it doesn’t do the best job of tracking the costs that impact retirees more.
There’s another, research version called the CPI-E, which is designed to track inflation for households of those who are 62 years old or older. Just to name the biggest differences, the CPI-E places more weight on medical care and housing when compared to the CPI-W, as seniors tend to spend a greater portion of their income on these categories. On the other hand, the CPI-E places less emphasis on food and beverages, transportation, and education and communication, all of which consume more income from younger households.
From 1985 through 2024, the CPI-W has increased at an annualized rate of 2.8%, while the CPI-E had an average annual increase of 3% over the same period, meaning that older Americans have faced higher inflation than the overall population. This might not sound like a big difference, but over time it adds up.
3. The 2026 Social Security COLA might be small
According to the nonpartisan Senior Citizens League (which isn’t an official government organization), the latest expectation for the 2026 COLA is 2.3%. Inflation has come down quite a bit, and while tariff uncertainty could certainly create some inflation, the organization is still predicting a lower COLA than this year, when it was 2.5%.
In fact, a 2.3% COLA would be the lowest given to Social Security beneficiaries since the 1.3% increase given in January 2021. Of course, if consumer prices aren’t rising rapidly, this isn’t necessarily a bad thing. However, it’s worth emphasizing that in addition to tariff policy, there are several other areas of uncertainty in the economy, such as the Federal Reserve’s monetary policy, and there’s a lot that could impact the actual 2026 COLA. After all, remember that the only data that matters is third-quarter inflation.