6 Important Things Retirees Should Know About Social Security COLAs and Income Changes

Social Security Benefits and COLA: Understand How Adjustments Work and Ways to Increase Your Benefits

Millions of Americans rely upon Social Security benefits at some stage in their retirement. On common, a retiree receives approximately $1,975 consistent with month, which is a large part of retirement profits. This makes it clear that Social Security has emerge as an essential economic assist for many getting older people. In addition, an vital benefit of Social Security is that it’s miles inflation-proofed, way to the “cost-of-residing adjustment” (COLA).

How ​​is COLA calculated?

Many people know that Cola is determined on the basis of inflation, but many people do not know how it is calculated.

Social Security Administration (SSA) determines Colas every year by looking at inflation data. This data is mainly available in the third quarter each year (July, August and September). During this time, the SSA:

• Compares the data with the same quarter of the previous year.
• If inflation increases, Social Security benefits are increased.
• This is why COLA is announced in October, as it follows September’s inflation data.

It should be mentioned that COLA is not necessarily indicative of the year’s inflation rate. For instance, in 2024, inflation was reported to have averaged 2.9%, yet the inflation rate taken in the third quarter was only 2.5%.

Type of inflation

The SSA uses the “Consumer Price Index for Urban Wage Earners and Clerical Workers” (CPI-W) to calculate COLA.

But there is an issue with this:

The CPI-W is designed for working Americans, not retirees. Many experts believe that using the “CPI-E” (which is for senior citizens) would be better because it gives more importance to healthcare expenses, which are higher for the elderly. But as of now CPI-E is not being used in calculating COLA, this is a legal limitation.

True Status of COLA

Many people talk about COLA for 2025, but it is not correct to say this. Actually, COLA for 2025 (2.5%) was implemented in December 2024, but Social Security benefits are paid after one month. This means that there is a gap of one month in getting retirement benefits, and the increased amount starts getting paid in January 2025.

What will happen if inflation decreases?

Will Social Security benefits decrease if inflation decreases? The answer is “no”. When inflation decreases, COLA cannot be negative. If the CPI-W experiences a negative rise, COLA can be 0%, but the benefits will not decrease. This has occurred three times since the introduction of the COLA system in 1975, and the most recent happened in 2009, when the COLA remained unchanged despite falling inflation.

Average COLA

COLAs have fluctuated significantly over the years.

Year	Highest COLA	Lowest COLA	Average COLA Since 1975	Average in the Last Decade
1980	14.3%	0% (3 times)	3.75%	2.6%

Since the introduction of COLA in 1975, average annual increase is about 3.75%. However, recently, the percentage increase has been much lower than this average rate, and within the last 10 years, it has only increased by 2.6%.

2026 COLA

Next year’s COLA is a little more difficult to predict because it depends on third quarter inflation data, which hasn’t been recorded yet. However, experts are providing some estimates:

• The Senior Citizens League has projected 2.1% for 2026, which would be the lowest in the past five years.
• The Federal Reserve estimates that inflation will be around 2.5% in 2025.
• A survey of economic experts predicts an inflation rate of 2.7%, meaning the 2026 COLA will probably be a little more than 2.1%.

These figures are subject to change, but retirees should expect a modest COLA increase in 2026.

Ways to increase your Social Security benefits

If you’re not getting the most out of Social Security, there are a few simple ways you can increase your benefits:

1. Delay benefits – If you wait until age 70, your monthly payment can increase by up to 8% each year.
2. Claim spousal benefits – If you’re married, you can get higher benefits based on your spouse’s earnings record.
3. Work longer – Your Social Security payments are based on your 35 best earning years. By working more, you can replace your low-earning years and increase your benefits.
4. Avoid mistakes – Many retirees claim early, thereby depriving them of thousands of dollars in benefits. A financial planner can ensure this is maximized for you.

Knowing these subtle tricks will enable you to maximize retirement income and ensure security.

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