What Is COLA and Why Does It Matter?
COLA is an annual adjustment made to Social Security and SSI benefits to help keep up with inflation.
It is based on inflation data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), published by the Social Security Administration and calculated using data from the U.S. Bureau of Labor Statistics.
The purpose is simple: If prices rise, benefits should rise too — so purchasing power isn’t lost.
What Does a 2.8% Increase Look Like in Dollars?
Here’s a rough estimate:
If you receive $1,500 per month, a 2.8% increase equals about $42 more per month
If you receive $2,000 per month, that’s about $56 more per month
If you receive $2,500 per month, that’s about $70 more per month
Over a year, that adds up — but it’s not life-changing money.
And here’s the challenge:
Healthcare, housing, and insurance often rise faster than the CPI-W measure used for COLA calculations. Research from the Senior Citizens League has repeatedly shown that older adults’ expenses don’t always match the inflation formula used to calculate COLA.
Where Your COLA Boost Can Quietly Disappear
Even with a 2.8% increase, here’s what may offset it:
Medicare Premium Adjustments
Medicare Part B premiums are often deducted directly from Social Security benefits. According to Centers for Medicare & Medicaid Services, premium changes can reduce the visible benefit increase.
IRMAA (Income-Related Monthly Adjustment Amount)
If your income crosses certain thresholds, you may pay higher Medicare premiums.
Property Tax Increases
Many counties reassess property values annually.
Insurance Premium Hikes
Auto and homeowners insurance rates have been rising nationally.
Food & Utility Costs
While inflation has cooled from peak levels, food and utility prices remain elevated in many regions.
Without a plan, your 2.8% increase can feel like it vanished.
Protect Your COLA Boost
Here’s how to keep more of your increase working for you.
Step 1: Separate the Increase Immediately
When your new payment arrives, calculate the exact dollar increase.
Move that extra amount into a separate savings bucket before it blends into everyday spending.
Psychologically, this protects it from disappearing.
Step 2: Assign It a Purpose
Choose one job for your COLA boost:
Build or strengthen your emergency fund
Offset rising Medicare costs
Increase a property tax reserve
Fund a “future healthcare” cushion
Pay down high-interest debt
Giving it a purpose prevents accidental lifestyle creep.
Step 3: Review Medicare and Insurance
Even small adjustments in plans can free up additional cash. The Social Security Administration and Centers for Medicare & Medicaid Services both publish annual updates that are worth reviewing during enrollment periods.
Step 4: Watch for Tax Effects
Social Security benefits can become partially taxable depending on total income. The Internal Revenue Service explains that up to 85% of benefits may be taxable depending on income thresholds.
A small COLA increase usually doesn’t dramatically change tax liability — but it’s wise to be aware.
Step 5: Resist Automatic Spending Increases
It’s tempting to think, “It’s only $40 or $50 more — I can spend it.” But over time, protecting even small increases builds resilience.
A $50 monthly increase saved consistently equals:
$600 per year
$6,000 over ten years (not including interest)
Small amounts compound into real security.
A Reality Check for SSI Recipients
Supplemental Security Income (SSI) recipients also receive COLA adjustments. However, SSI eligibility and state supplements may be affected by:
Living arrangements
Income changes
Asset limits
The Social Security Administration provides updated SSI income and resource limits annually.
What This 2.8% Increase Really Means
A 2.8% COLA isn’t dramatic — but it’s not meaningless either.
It’s a reminder that:
Your income adjusts with inflation
You still have financial leverage
Small gains, protected properly, add up
The real opportunity isn’t the percentage. It’s what you do with it.
Financial progress often comes from protecting what you already have — not chasing more.
A 2.8% COLA boost may seem modest. But handled wisely, it can strengthen your stability year after year.
Protect the increase. Give it a purpose. Let it quietly work for you.
With care,
Mike Bridges
Founder, The O55 Report