Social Security's 2026 COLA Is Shaping Up to Be a No-Win Scenario for Retirees

Key Points

• New COLA estimates can give retirees a glimpse of what they might expect in 2026.

• We may see a larger adjustment next year, but bigger raises come with drawbacks.

• New tax benefits could offer additional short-term financial relief.

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

The Social Security cost-of-living adjustment (COLA) aims to help benefits maintain their buying power amid rising inflation, and many retirees look forward to receiving their annual "raise."

While the official COLA won't be released until October, after the Social Security Administration tabulates third-quarter inflation data, there are already a few insights we can glean from the year so far. Here's why there may be some not-so-good news on the horizon for retirees.

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The COLA may increase in 2026

Again, we won't know the actual COLA for 2026 until October. However, nonpartisan advocacy group The Senior Citizens League (TSCL) releases monthly estimates based on inflation data throughout the year.

While the COLA may change between now and October, these estimates can still help spot trends in inflation. According to TSCL's most recent estimate, released on July 15, next year's COLA prediction is 2.6%. That's up from the 2.5% estimate last month and the 2.1% prediction in January.

A larger COLA may seem like good news on the surface, but it also means that inflation is increasing. The Consumer Price Index surged by 2.7% compared to last year, according to data from the Bureau of Labor Statistics, fueled at least in part by President Trump's tariff policies taking effect.

COLAs have a shaky history with inflation

Increasing inflation will put even more strain on retirees' budgets. Although the COLA aims to alleviate that, it hasn't been particularly effective in recent years.

According to a 2024 study from TSCL, Social Security benefits have lost around 20% of their buying power since 2010 -- even with annual COLAs. The average monthly benefit among retirees was around $1,860 per month at the time of the study, when it should have been around $2,230 had it maintained its buying power.

One of the reasons the COLA struggles to keep pace with inflation is the way it's calculated. The Social Security Administration bases the adjustment on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures price changes affecting workers. Because retirees and workers often have different spending habits, the CPI-W doesn't always accurately reflect inflation's impact on older adults.

In other words, not only does a higher COLA signal that inflation is on the rise yet again, but because of how the adjustment is calculated, even a larger raise may not provide much real relief for retirees.

New tax deductions could provide relief for retirees

Aside from the COLA, many retirees will receive some financial relief in the form of an extra tax deduction. Under President Trump's recently passed "Big, Beautiful Bill," individuals age 65 and older will receive an extra $6,000 annual tax deduction, with married couples receiving a $12,000 deduction.

While the bill doesn't eliminate federal taxes on Social Security, these deductions will reduce many seniors' taxable income enough that they will not owe federal taxes on their benefits. However, these deductions are only temporary and are set to expire in 2028.

In addition, because Social Security depends heavily on taxes as a source of income, reducing taxes will likely put more strain on the program's trust funds -- potentially leading to benefit cuts sooner than expected.

We won't know the official COLA for a few more months, but with inflation already heating up, we may see a larger raise in 2026. While there may not be much you can do when it comes to the COLA or inflation, by understanding the COLA's limits and what to expect, it will be a little easier to prepare your budget accordingly.

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