Posted on Wednesday, July 23, 2025
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by AMAC, D.J. Wilson
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2 Comments
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Social Security is a social insurance program where contributions are made through payroll tax. It was enacted in 1935 amid the Great Depression to offer financial boosts to the aged. The term “Primary Insurance Amount” or “PIA” typically refers to how much people would receive if they got Social Security at full retirement age. People who retire early and qualify for Social Security before full retirement age may be eligible for reduced benefits. In addition to receiving Social Security (for which they paid in), people on the program are also eligible for cost-of-living benefit increases starting with the year they turn 62. Cost-of-living benefits are adjusted yearly to reflect the increase in living expenses. Read on to learn more.
The inflation game
In economics, inflation is an increase in the average price of goods and services. Inflation is particularly hard hitting for the senior population because it does two main things. One, it makes products and services they buy more expensive. Two, it reduces the purchasing power of the dollar. This unsavory inflation-related combination makes it harder for older individuals to maintain standards of living. Hence, SSA COLA (the Social Security Administration’s Cost-of-Living Adjustment) is the government’s response to inflation for people on Social Security. This annual increase in Social Security benefits is designed to soften the blow for Social Security and Supplemental Security Income (SSI) recipients during periods of inflation and beyond.
CPI-W
SSA COLA adjusts to reflect rising prices. This adjustment is based on the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Since 1983, COLA continues to be calculated by comparing the CPI-W for the third quarter of the current year to the average CPI-W for the third quarter of the previous year. Note that is a measure of inflation calculated by the Bureau of Labor Statistics (BLS).
No action necessary
The Social Security Administration (SSA) announces the COLA in October each year, and the increase typically begins in January of the following year. It is not necessary for individuals to take action to receive it. Generally, senior citizens receiving Social Security benefits will automatically get the annual COLA benefit which the Social Security Administration adjusts each year. Seniors should watch out for COLA enrollment scams that trick seniors into divulging personal information or are designed to steal funds. Again, you do NOT need to enroll or pay to join.
Brief backstory
Social Security COLA is not brand new. These automatic yearly COLAs began in 1975 to deal with inflation that was high in the 1970s. Prior to that, it took a new act of Congress to increase Social Security benefits each time. However, no adjustments for inflation were made until 1950. Since COLA increases are designed to counteract fluctuating inflation, benefit amounts vary from year to year. There is no guarantee of an increase each year as it is dependent on the state of the economy. To demonstrate how COLAs can vary, compare 1980’s 14.3 % increase to 2010 & 2011’s zero %. A decrease in COLA typically indicates that inflation is under control. In periods of tough times for the economy, COLA continues to make a difference today by counteracting inflation, even by modest means, allowing people to maintain their purchasing power.
How COLA works
Per Investopedia, COLA prevents inflation from significantly eroding the value of Social Security benefits to retirees. The government steps in to adjust the amount of benefits. Here are examples based on actual COLA increases. The COLA was 3.2% for 2024. Someone who received $10,000 in Social Security benefits in 2023 would see their 2024 annual benefit income increase to $10,320. The COLA for 2025 is 2.5% on earnings that same person who received $10,320 in 2024 benefits would receive $10,578 in 2025.
Meager matters
For those on fixed incomes, even meager increases can help. Bankrate gives the following example of how small adjustments (using a 2.4 percent increase) can make a big difference in the value of a dollar over time. “Let’s say you retire today at age 62 with a $2,000 monthly benefit. With inflation at 2.4 percent, you’d need a monthly benefit of $2,658 to maintain your purchasing power when you hit 74 years old. Another 10 years and you’d need $3,370 each month to have the same purchasing power as when you first retired. So at age 84 without a COLA, your money wouldn’t go nearly as far as it did when you first started receiving benefits.”
Widespread benefits
SSA.gov shares that the 2.5 percent cost-of-living adjustment (COLA) covers nearly 68 million Social Security beneficiaries in 2025. The goal is keeping people on Social Security in step with inflation. Social Security typically notifies people about their new benefit amount by mail. Notices are also available in the Message Center of a person’s my Social Security account and provide exact dates and dollar amounts of new benefits and any deductions. Bear in mind that when inflation is down, recipients will likely not expect an increase the following year.
Disclosure: This article is purely informational and is not intended as a substitute for professional advice.
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