The 2026 Social Security COLA May Be Higher Than Expected

Key Points

• With inflation slowing in the first half of 2025, many assumed the 2026 Social Security COLA would shrink from this year.

• But now, the 2026 COLA is shaping up to be higher than expected, as inflation has rebounded in recent months.

• A higher COLA has both pros and cons.

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

Social Security cost-of-living-adjustments (COLAs) have been high in recent years, due to some of the worst inflation seen in roughly four decades. But as the Federal Reserve worked quickly to rein in rising prices, inflation has fallen from a peak of 9.1% in 2022 to less than 3% now, including more volatile food and gas prices.

Coming into the year, the 2026 Social Security COLA looked like it might be the lowest in five years, but it may end up being higher than expected.

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Inflation has ramped back up in recent months

As I mentioned above, the Social Security COLA is based on inflation data. Specifically, the COLA is determined by data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is a subset of the Consumer Price Index for All Urban Consumers (CPI-U). The CPI-W focuses more on goods and services that blue-collar workers are likely to buy.

The CPI-W is reported monthly, but the data that determines the COLA is specifically from the third quarter of the year (July, August, and September). The Social Security Administration takes the average CPI-W number from these months and compares it to the same quarter a year ago. Any percentage increase becomes the new COLA for the following year. In the first half of 2025, inflation had been slowing, but it has picked back up since June. Here's the year-over-year change in the CPI-W for each month so far.

January: 3.0%

February: 2.7%

March: 2.2%

April: 2.1%

May: 2.2%

June: 2.6%

July: 2.5%

August: 2.8%

It's not entirely clear why inflation has reaccelerated, although it could have to do with inflation being stickier than many expected. President Donald Trump's tariffs could also be having an impact. But heading into the year, the non-partisan Senior Citizens League (SCL), which closely monitors all things Social Security, believed the downward trajectory of inflation would lead to a COLA of 2.1% in 2026.

Now, obviously a lot has changed since then, and it's common for the SCL's COLA predictions to change throughout the year. But if the COLA were to be 2.1%, it would be the smallest COLA over the past five years, which included a 2022 COLA of 8.7% and a 2021 COLA of 5.7%. Now, following the ramp-up in inflation seen in recent months, the SCL thinks the 2026 COLA will be 2.7%.

Of course, the critical September inflation number is not yet available. That final data point will give the SSA the information it needs to calculate next year's COLA. Considering how unpredictable everything has been, it wouldn't surprise me to see September inflation surprise to the downside or upside.

Remember, COLAs are a double-edged sword

Social Security retirees should of course remember that COLAs are not all good. Sure, they increase benefits, which gives retirees more money to spend, but when COLAs go up, it's because the cost of living went up.

Interestingly, the SCL conducts an annual study about the loss of purchasing power in Social Security benefits, and it has found that Social Security retirees have lost about 20% of their purchasing power since 2010. One culprit for this is simply that COLA's have not kept pace with the rate of inflation in eight of the last 15 years. Each year the COLA trails behind inflation tends to have a compounding affect, according to the SCL.

So every year inflation does increase from the prior year, there is a chance the COLA won't be enough. COLAs have surpassed the rate of inflation in five of the last 15 years but it has not been enough to offset the down years, which is something for investors to keep in mind as they celebrate higher COLAs.

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