Social Security updates its 2026 Cost-of-Living Adjustment (COLA) projection, revealing potential benefit hikes and explanations as to why it may fall short.
Social Security beneficiaries are bracing themselves for a 2.6% increase in their benefits next year, as announced by The Senior Citizens League (TSCL). However, many seniors feel that these increases are insufficient to meet the rising costs of living, particularly in key areas like housing and healthcare.
The annual adjustment of Social Security benefits is made to compensate for inflation, and the cost-of-living adjustments (COLAs) are tied to a subset of the Consumer Price Index known as the CPI-W. The average monthly benefit for retired workers is projected to range from $2,053 to $2,059 in 2026, representing a potential increase of $48 to $54 from June 2025's average payout.
However, inflation in spending categories most important to retired workers is running hotter than overall CPI-W inflation. For instance, housing inflation measured 3.9% year to date through June 2025, while medical-care inflation stood at 2.8%. If this trend persists through the third quarter, Social Security's 2026 COLA may be too small, potentially causing benefits to lose purchasing power next year.
The mismatch in inflation measurement is another concern for seniors. The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which reflects spending patterns of typical urban workers rather than retirees. Seniors spend a larger share on shelter and medical care—costs that have increased at rates (3.8% and 3.4% respectively) higher than the COLAs awarded.
Moreover, the purchasing power of Social Security benefits erodes over time due to the COLA not weighting seniors’ key expenses sufficiently. This means that despite nominal increases, the actual buying power of benefits decreases.
The recent history of volatility in COLA increases also contributes to the perception that the increases are inadequate. After an unprecedented 8.7% COLA in 2023, the more modest increases in 2024 (3.2%) and 2025 (2.5%) appear relatively small, especially as inflation pressures on senior-specific costs remain high.
The Social Security Board of Trustees, the Congressional Budget Office, and the Bureau of Labor Statistics all estimate slightly different COLA percentages for 2026, ranging from 2.4% to 2.7%. The official 2026 COLA will be announced by the Social Security Administration on Oct. 15.
Seniors are hopeful that the upcoming COLA will better reflect the inflation they are experiencing, particularly in housing and healthcare costs. Until then, many will continue to feel the pinch of inflation on their retirement budgets.
[1]: Source for the information about the mismatch in inflation measurement, purchasing power erosion, and recent history of volatility. [2]: Source for the information about the mismatch in inflation measurement, purchasing power erosion, and recent history of volatility. Also provides additional information about the CPI-W and its impact on COLA calculations. [3]: Source for the information about the recent history of volatility in COLA increases. [4]: Source for the information about the purchasing power erosion. [5]: Source for the information about the recent history of volatility in COLA increases.
- The mismatch between the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and the spending patterns of retirees indicates that the purchasing power of Social Security benefits may erode over time due to theCOLAs not weighting seniors' key expenses sufficiently, such as housing and healthcare costs.
- Inflation in spending categories most important to retirees, like housing and healthcare, is running at rates higher than CPI-W inflation, which could cause Social Security's 2026 COLA to be too small, leading to a potential loss of purchasing power next year.
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