4 Lesser-Known Facts About Social Security Cost-of-Living Adjustments (COLAs)

Social Security COLA Overview: Social Security benefits receive annual cost-of-living adjustments (COLAs) based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), with recent increases of 2.5% in 2025 and 2.8% in 2026.

Historical Context: Before 1975, COLAs required legislative approval, but the current system allows for automatic adjustments, protecting seniors from decreases in benefits even if inflation is low.

Challenges with CPI-W: The CPI-W does not accurately reflect the specific costs faced by seniors, particularly in healthcare, leading to a reported 20% loss in buying power for Social Security recipients from 2010 to 2024.

Importance of Retirement Planning: Understanding the limitations of COLAs is crucial for retirees, emphasizing the need for additional retirement savings to supplement Social Security benefits.