Cost-of-Living Adjustment (COLA) pay primarily benefits over 71 million Americans, including Social Security beneficiaries, SSI recipients, and federal/military retirees, typically adjusting in January to match inflation. Eligibility often requires being age 62+ and retired for 5+ years, or age 55+ for certain uniformed services.
Whenever the federal government issues a cost of living adjustment, it applies to every Social Security recipient. However, COLA doesn't occur every year; it's only when the CPI-W (the inflation index Social Security uses) increases. That way, your benefits can keep pace with inflation.
Unless it's required by law, each company can decide whether to offer this benefit and how much to change salaries for COLA. In 2023, 80% of employers planned to provide base pay increases to cover inflation. Employers must offer a cost-of-living salary adjustment for every employee.
COLA is an annual cost-of-living increase that begins the second calendar year after retirement and helps your retirement benefit keep up with the rate of inflation. Eligible retirees, including survivors and beneficiaries, will receive information in April for their May 1 retirement check.
To get the full COLA, a retiree or survivor annuitant must have been in receipt of payment for a full year. If not, the increase is prorated under both plans. Prorated accounts receive one-twelfth of the increase for each month they received benefits. Cost-of-Living Adjustments were first prorated in April 1982.
In instances where it's not mandated, COLA raises and how often they are given are at an employer's discretion. Cost-of-living raises may not be needed every year. For example, in years when inflation remains flat, employers may choose not to give a cost-of-living raise.
The 2.8 percent cost-of-living adjustment (COLA) will begin with benefits payable to nearly 71 million Social Security beneficiaries in January 2026. Increased payments to nearly 7.5 million SSI recipients will begin on December 31, 2025. (Note: Some people receive both Social Security and SSI benefits.)
Companies aren't legally required to offer COLA, but many use it as a retention and fairness tool.
How is a COLA calculated? The Social Security Act specifies a formula for determining each COLA. According to the formula, COLAs are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-Ws are calculated on a monthly basis by the Bureau of Labor Statistics.
Social Security COLAs are automatic and begin in January. The Consumer Price Index for Urban Wage Earners and Clerical Workers tracks inflation and determines the annual COLA rate. Everyone receiving SSDI or SSI benefits gets the COLA.
The extra $144 added to Social Security usually comes from the Medicare Part B Giveback benefit, offered by some Medicare Advantage (Part C) plans, which pays back some or all your Part B premium, showing up as extra money in your check if it's deducted from your Social Security. To qualify, you need Original Medicare (Parts A & B), pay your own Part B premium, live in a plan's service area, and enroll in a specific Medicare Advantage plan that offers this "rebate," with the amount varying by plan and location.
For private-sector employers, there is no obligation under federal law to provide automatic annual COLA increases to wages or salaries. The 2.8% figure does not impose a regulatory mandate on private businesses.
Yes, Social Security recipients received a Cost-of-Living Adjustment (COLA) for 2025, but the bigger news is that they are getting a larger 2.8% COLA for 2026, announced in October 2025, which began with January 2026 payments, increasing average benefits by about $56 per month. The 2025 COLA was a smaller 2.5% increase, while the 2026 adjustment reflects moderating inflation, leading to higher payments starting in the new year.
Preparation
Requirements to Receive the COLA Bank
Only those retirees (or continuing survivors) whose benefits commenced on July 1 and continued for one full Fiscal Year will receive COLA Bank, if any. For example, the July 1, 2025 COLA bank is 0.3% for a July 1, 2024 retirement date.
No, COLA raises are not mandatory, and not every year has seen a COLA. COLA raises happen only in relation to changes in the CPI-W, based on certain levels.
Nearly 71 million Social Security beneficiaries will see a 2.8 percent COLA beginning in January 2026. Increased payments to nearly 7.5 million people receiving SSI will begin on December 31, 2025.
There is no legal requirement for an employer to give a pay rise to an employee unless: they earn the minimum wage and it increases. they earn the minimum wage and move into the next age bracket. their contract states they are entitled to one.
A cost of living adjustment is an increase in pay or benefits to cover the rising cost of goods and services due to inflation. Recipients of a COLA may be employees in the private and public sectors or retirees on a fixed income. The latter is one of the most common examples of COLA.
The COLA is applied to survivor benefits, family benefits and Social Security Disability Insurance (SSDI) as well as retirement benefits, and to SSI, a monthly benefit administered by the SSA for people with low incomes and limited assets who are 65 or older, blind or have a disability.
Those annual pay raises are only for employees. For retirees, they receive a CSRS or FERS pension, and that pension will change over time based on specific economic conditions. This increase is called a cost-of-living adjustment (or COLA).