Social Security Benefits Will Get a Historic COLA in 2026, but It May Come With Bad News for Retirees

Key Points

• The latest forecasts put Social Security's 2026 COLA between 2.7% and 2.8%, which would amount to an extra $648 to $672 in benefit income for the average retired worker next year.

• Social Security's COLAs are based on inflation through September, but many economists expect inflation to worsen beyond that point as companies pass tariffs on to consumers.

• The Tax Foundation estimates tariffs will amount to a $1,600 tax increase for the average U.S. household in 2026, more than the projected increase in the average retired-worker benefit.

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

Social Security undergoes several changes each year to keep benefits aligned with wages and inflation, but none are so highly anticipated as the annual cost-of-living adjustment (COLA).

The Social Security Administration will announce the finalized 2026 COLA next month. The pay increase is likely to be historic for retirees, but it still comes with bad news. Read on to learn more.

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How the Social Security Administration determines COLAs

Since 1975 , Social Security beneficiaries have received annual cost-of-living adjustments (COLAs) tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a popular measure of inflation updated monthly by the Bureau of Labor Statistics.

Here's how it works: The percent change in the CPI-W during the third quarter (July to September) in a given year 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 got a 2.5% COLA in 2025.

Social Security benefits are on pace to get a larger COLA in 2026

Below are the latest projections concerning Social Security's 2026 COLA. Estimates vary slightly because one more data point (i.e., September inflation) is needed to calculate the official figure.

• The Senior Citizens League (TSCL), a nonpartisan senior advocacy group, expects benefits to increase 2.7% next year.
• The Social Security Board of Trustees expects benefits to increase from 2.4% to 3%, with the most likely outcome being 2.7%.
• Mary Johnson, independent Social Security and Medicare policy analyst, expects benefits to increase 2.8% next year.

The Social Security Administration will announce the 2026 COLA shortly after the Bureau of Labor Statistics publishes its September inflation report on October 15. But the estimates above imply the average retiree will receive an extra $54 to $56 per month in 2026, which is $648 to $672 for the full year.

Social Security's 2026 COLA will be a historic event for beneficiaries

If the estimates in the previous section are correct in forecasting a 2.7% to 2.8% COLA in 2026, that would be the fifth consecutive year in which Social Security payments increase at least 2.5%. That has not happened for nearly three decades. The last time was the five-year period that ended in 1997.

Additionally, if Social Security benefits increase 2.7% to 2.8% in 2026, it would bring the average COLA over the last five years to 4.6%. That has not happened for four decades. The last time was 1986, when the five-year average was 5.7%.

Why the historic COLA may not be enough for retired workers

To some extent, that Social Security benefits are on pace to get a bigger COLA in 2026 as compared to 2025 is good news for retired workers. It means they will have a little more additional income to cover living expenses. But there is undoubtedly a downside.

Social Security's COLAs are based on inflation, so a larger COLA means consumer prices are rising more rapidly. President Trump's tariffs are the culprit. CPI inflation fell to 2.4% in April, the lowest level in four years, but has since reaccelerated to 2.9% in August as tariffs have rippled across the economy.

Many economists expect that trend to continue as companies pass along more of the tariffs to consumers. Elsie Peng at Goldman Sachs says companies passed along 22% of tariffs through June, but she expects that figure to reach 66% by October. In that scenario, inflation would continue to increase beyond September, but COLAs only include inflation data through September.

The upshot is any acceleration in inflation beyond September would not be reflected in the 2026 COLA, which means the pay increase would likely be too small and benefits would lose purchasing power next year. Indeed, the nonpartisan Tax Foundation says the current tariff regime will amount to an average tax hike of $1,600 per U.S. household in 2026.

So what? Earlier, I wrote the latest COLA forecast implies an extra $648 to $672 in benefits for the average retired worker in 2026. Even if we double the larger figure (many households have two members), the final figure is still a few hundred dollars short of the projected $1,600 tax hike. That means retirees may feel like they actually have a little less money next year.

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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.