Social Security: There's a Silver Lining in the Otherwise Bleak Projection for 2026's COLA

Key Points

• Initial estimates for 2026's Social Security cost-of-living adjustment (COLA) are not looking favorable.

• There are hidden benefits to stingier COLAs.

• None of the data that will go into calculating next year's actual Social Security COLA is available yet.

Many people tell themselves they should save for retirement so that they won't end up overly reliant on Social Security. But we all know what sometimes happens -- life gets in the way. And so inevitably, a lot of people end up closing out their working years with minimal savings, leading to a scenario where they absolutely need Social Security to cover their essential living expenses.

For people in that boat, Social Security's annual cost-of-living adjustments (COLAs) are crucial. Without COLAs, those Social Security payments would be guaranteed to lose buying power year after year due to inflation. It's for this reason, in fact, that lawmakers voted decades ago to make Social Security COLAs automatic rather than requiring new legislation for each year's bump.

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This past January, seniors on Social Security received their smallest COLA in years -- a 2.5% raise. In light of that, many retirees have been hoping a more generous COLA will come through in 2026.

Based on recent estimates, that doesn't seem to be likely. But while the current 2026 Social Security COLA projection doesn't look too optimistic, there's a hidden benefit seniors should know about.

What we can predict about 2026's Social Security COLA

Social Security COLAs are calculated based on inflation data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). It measures U.S. inflation based on the prices for a diverse basket of goods and services. When there's a rise in the index from one year to the next, Social Security benefits go up.

Based on the inflation data we have for the year so far, the nonpartisan Senior Citizens League, an advocacy group, is estimating that 2026's Social Security COLA will be 2.5% -- the same exact number as 2025. Given that many seniors feel this year's COLA was inadequate, that's not the best news.

However, there is a silver lining. A small Social Security COLA is an indication that inflation has cooled down.

The reason that the COLAs in 2023 and 2023 were more robust was that inflation surged following the pandemic. Lawmakers were generous with stimulus funds in 2020 and 2021, and that led to an uptick in consumer spending at a time when supply chains were getting snarled, leading to shortages -- a confluence of conditions that allowed suppliers to boost prices.

The result was a period of rampant high inflation in the U.S. and many other nations that was difficult on retirees and workers alike. Inflation levels in the U.S. are far more moderate today, which means that while Social Security recipients may not get the largest COLA in 2026, they also won't face the largest cost increases.

To put it another way, a smaller Social Security COLA is an indicator that things like grocery prices, gas prices, and utility prices are holding relatively steady. And that stability could do seniors on Social Security a lot more good than a larger raise.

It's too soon to predict next year's COLA with certainty

Although 2025's inflation readings to date can give an indication as to what 2026's Social Security COLA will amount to, that raise will be based on CPI-W data from the third quarter of the year -- which just began this past week. So for now, we have no hard data to help us calculate what the upcoming COLA will be.

The Social Security Administration should announce the 2026 COLA number in October based on inflation readings from July, August, and September. And while seniors may be disappointed with it at face value, it's important to remember that a smaller COLA tends to spell relief in the context of people's everyday expenses.

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