Social Security's 2026 Cost-of-Living Adjustment (COLA) Is Likely to Be Bad News for Retirees

Key Points

• The Senior Citizen League estimates Social Security benefits will receive a 2.6% cost-of-living adjustment (COLA) in 2026.

• Social Security's COLAs are based on CPI-W inflation, which is problematic because the CPI-W does not account for the spending habits of seniors.

• President Trump's federal hiring freeze has limited the Labor Department’s ability to track inflation, which means the 2026 COLA could be inaccurate.

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

Less than one-third of retirees report being "very confident" when asked whether they have enough money to live comfortably throughout retirement, according to a survey from the Employee Benefit Research Institute. In most cases, inflation is the reason for that lack of confidence.

Social Security beneficiaries receive cost-of-living adjustments (COLAs) each year to keep benefit payments aligned with rising prices across the economy, but surveys conducted by The Motley Fool suggest more than 50% of retirees found the last two COLAs insufficient.

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Indeed, Social Security benefits have lost 20% of their purchasing power since 2010 because COLAs have failed to keep pace with inflation, according to The Senior Citizens League, a nonprofit advocacy group. Unfortunately, the 2026 COLA is likely to be more bad news for retired workers on Social Security.

Here's why.

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Social Security's COLAs may not accurately reflect the pricing pressures seniors face

The Social Security Administration determines cost-of-living adjustments (COLAs) using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). That metric tracks how prices change across eight major spending categories:

1. Apparel
2. Education and communication
3. Food and beverages
4. Housing
5. Medical care
6. Recreation
7. Transportation
8. Other goods and services

Social Security's COLAs are calculated like this: The third-quarter CPI-W from the current year is divided by the third-quarter CPI-W from the previous year, and the percent increase (if any) becomes the COLA in the next year. For instance, the CPI-W increased 2.5% in the third quarter of 2024, so Social Security benefits increased 2.5% in 2025.

Importantly, the spending categories used to determine CPI-W inflation are weighted based on the purchase patterns of persons in the workforce. That is a problem for Social Security recipients because they tend to be older than individuals of working age, and older people usually spend money differently.

For instance, seniors generally spend more on housing and medical care, which means CPI-W inflation understates the importance of those spending categories. Unfortunately, housing and medical care prices are increasing faster than the overall CPI-W in 2025, which means the 2026 COLA is likely to understate inflation from the perspective of retired workers.

Specifically, CPI-W inflation measured 2.4% through the first six months of 2025, while housing prices rose 3.9% and medical care prices increased 2.8%. Assuming that trend persists through the third quarter (i.e., July through September), the 2026 COLA will be too small. In other words, Social Security benefits will lose buying power next year.

The inflation data that will determine the 2026 COLA is more suspect than usual

The Social Security Board of Trustees expects a 2.7% COLA in 2026, and The Senior Citizens League expects a 2.6% COLA. Both estimates are based on projected CPI-W inflation in the third quarter, which is already a questionable method for calculating COLAs for the reasons discussed in the previous section.

However, CPI-W numbers are extra suspect this year because President Trump instituted a hiring freeze across federal agencies at the beginning of his second term. The Labor Department (the federal agency responsible for tracking inflation) says that hiring freeze has limited its ability to conduct the surveys that determine the CPI-W.

Consequently, the Labor Department is using a "less precise method for guessing price changes" this year, according to The Wall Street Journal. Less reliable data introduces another variable that could cause Social Security's 2026 COLA to miss the mark. And that is undoubtedly bad news for retired workers.

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