The 2026 Social Security Cost-of-Living Adjustment (COLA) Is Shaping Up to Be Higher Than Anticipated. Here's Why Retirees Shouldn't Celebrate Just Yet.

Key Points

• The annual Social Security COLA is based on a standard measure of inflation throughout the third quarter of each year.

• Prices have continued climbing higher faster than expected, resulting in an increase in COLA estimates.

• But many retirees could be facing a more challenging economic environment, and a big raise might not be enough.

• The $23,760 Social Security bonus most retirees completely overlook ›

Social Security may be the most valuable retirement asset most Americans have. The pension for retired workers accounted for 20% of families' total wealth in 2022, according to a study by the Congressional Budget Office. That's based on a calculation valuing all future payments at present value.

Those future payments get a boost every year, which could make them even more valuable to Americans. The annual cost-of-living adjustment (COLA) helps benefits keep up with inflation. And while we won't have the official 2026 COLA number until mid-October, it looks like it'll come in higher than what analysts anticipated at the start of the year.

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But a bigger COLA isn't necessarily reason for Social Security recipients to celebrate. Here's what retirees need to know.

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What's pushing the 2026 COLA higher?

The annual COLA is based on a standard measure of inflation published every month by the Bureau of Labor Statistics called the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

The CPI-W is one of several Consumer Price Index measurements the government publishes. The BLS surveys thousands of businesses and households across the country to collect pricing data on over 200 line items. Those prices are then indexed to a standard price from when the BLS first started collecting data, and weighted according to typical spending patterns of the group the index is supposed to follow. In the case of the CPI-W, the basket of goods represents the spending of working-age adults living in cities.

The Social Security Administration calculates the COLA by taking the average year-over-year increase in the CPI-W during the third quarter, i.e. July, August, and September. The BLS just published August's CPI numbers on Sept. 11, with the CPI-W climbing 2.8% year over year. That follows a 2.5% increase in July. The final reading to determine the 2026 COLA will come out on Oct. 15.

Based on expectations for that reading, both The Senior Citizen's League and independent analyst Mary Johnson have published their expectations for next year's COLA. The former expects it to come in at 2.7% while the latter expects retirees to receive a 2.8% bump. Both estimates are higher than the 2.5% initial estimate The Senior Citizen's League published before the start of the year.

The reasons for a higher COLA are bad news for 70 million beneficiaries

A bigger-than-expected raise is usually great news for those receiving it, but in the case of Social Security's 70 million beneficiaries, it signals a challenging economic environment.

The biggest challenge is that the CPI-W doesn't perfectly match the spending of most seniors. Most people don't spend their money in retirement the same way they did when they were working age. They probably commute less and spend less on new clothing. They probably have different dining habits. And it's almost certain that their medical bills have climbed higher as they grow older.

To that end, some of the biggest expenses seniors face are climbing faster than the overall CPI-W numbers. Medical care services were notably 4.2% higher this August than the year before. While gasoline prices were down, utilities were way up. Shelter expenses climbed 3.6%. Despite a 2.7% or 2.8% raise coming in January, most seniors have seen their real cost of living climb much more over the past year.

Rising medical costs are most prominently seen in the Medicare Trustees' estimate for next year's Medicare Part B premium. They expect the program will have to charge a standard monthly premium of $206.20 next year, an 11.5% increase from 2025. For those keeping track, that far outpaces the expectations for Social Security's COLA. Beneficiaries age 65 and older enrolled in Medicare will see that amount come right out of their new monthly payments.

The Senior Citizens League contends this situation isn't unique to this year's COLA. It ran a study that estimates the buying power of someone's benefits who started Social Security in 2010 has decreased 20% through 2024.

The best economic environment for Social Security has historically been slow, steady, and predictable inflation. Under the current administration, which has gone back and forth on trade policies numerous times since the start of the year, prices have become anything but predictable. While many businesses have taken preemptive steps to curb and delay the impact of tariffs, the costs will eventually get passed through to consumers. That could result in even more pain for those on a fixed income next year.

While a 2.7% or 2.8% raise might be bigger than anticipated, many seniors may find that it doesn't go far enough next year.

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