How Social Security calculates the COLA
Social Security bases its annual cost-of-living adjustment on the average change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for July, August and September compared with the same three months the previous year.
Social Security computes the annual cost-of-living adjustment (COLA) by averaging the year-over-year change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for July, August and September and comparing that average to the same period a year earlier. That CPI-W comparison determines the percentage increase, if any, applied to benefits.