Here's the Biggest Problem With Social Security's 2026 COLA

When the Social Security Administration announced that beneficiaries will be getting a 2.8% cost-of-living adjustment (COLA) in 2026, some seniors may have been pretty happy to hear that news. In 2025, Social Security benefits only rose by 2.5%. So a 2.8% raise is already an improvement.

But there's a big problem with Social Security's upcoming COLA seniors should know about. And it's a problem that may persist well beyond the new year.

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Social Security COLAs have their limits

The purpose of Social Security COLAs is to help ensure that beneficiaries are able to keep up with their costs as inflation drives prices higher through the years. In fact, Social Security COLAs are pegged to a specific inflation index -- the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Here's the problem, though. The CPI-W does not do a great job of capturing the costs seniors on Social Security face. For this reason, COLAs tend to do a poor job of helping retirees keep up with their expenses.

The CPI-W is based on the expenses of households that meet these criteria:

• More than 50% of the household's income must come from clerical or wage occupations.
• At least one earner in the household must have been employed for at least 37 weeks during the previous 12 months.

But retirees who don't work don't meet these criteria. For this reason, the current system of calculating Social Security COLAs is not the best.

A better option would be to calculate Social Security COLAs based on a senior-specific index. But unless lawmakers implement such a change, the current model will remain in place -- and will likely lead to insufficient COLAs through the years.

How to plan around your upcoming 2026 COLA

If you're a retiree on Social Security who's hoping next year's COLA will improve your financial situation, you may want to reset your expectations. The best your 2026 COLA will most likely do is help you keep up with inflation -- not gain buying power. And because of the way COLAs are calculated, you may not even get that benefit.

If you've been struggling to cover your living costs, it's time to take a close look at your spending and circumstances and see if you can make other changes to improve your financial picture. And one option to strongly consider is going back to work.

A job could provide you with a steady stream of income to supplement your Social Security benefits. And there's no issue with working while you're on Social Security once you've reached full retirement age.

If you haven't gotten to full retirement age yet, you will need to be mindful of Social Security's earnings test. But that shouldn't be a reason not to pursue a job opportunity if you need the money.

Another option to look at is using your home to better your financial situation. If you no longer need as much square footage, downsizing is an option to consider. You may be able to walk away with enough money to buy a replacement home and still have some cash left over to put into an investment portfolio that serves as your nest egg through the years.

If you don't like the idea of selling your home but you have a larger property, you could consider renting out a room or a finished basement for income. You may even be able to work out an arrangement with a tenant where they do maintenance work in exchange for reduced rent, thereby sparing you that expense.

While you may be happy to be getting a larger Social Security COLA in 2026 than what you got this year, the extra money may only go so far. It's important to recognize that and take steps to improve your finances without that 2.8% boost to your benefits.

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