The 2026 COLA Is Set -- Here's the Good and Bad News for Social Security Recipients

Social Security enthusiasts and retirees have spent lots of time waiting for the 2026 cost-of-living adjustment (COLA) for Social Security benefits to be announced. Well, the number is out, and it's 2.8%.

If you've been collecting, say, a $2,000 monthly benefit, you'll soon be getting $2,056 each month, which is a $56 bump. Over the course of a year, you'll be getting $672 more.

If that doesn't look like much, you're right -- it's not a huge increase, though it's not out of the ordinary. Over long periods, inflation has averaged roughly 3% annually, and COLAs follow inflation. This increase, though, like others, is both good news and bad news for retirees.

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Social Security's COLAs in the past

To put the recent 2.8% increase in context, here are some recent years' COLAs:

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What's good about Social Security COLAs

The main good thing about Social Security COLAs is that they help retirees keep up with inflation. When retirement income doesn't increase over time, retirees can end up really struggling in the future.

Consider that if inflation averages about 3% for 25 years, an unchanged benefit of $2,000 would only be able to buy you around what $1,000 buys you today. Inflation can cut the purchasing power of your dollars in half or more over time.

That's the best thing about Social Security COLAs, and it's a big one.

What's bad about Social Security COLAs

Unfortunately, Social Security's COLAs are often not big enough -- because they're based on a measure of inflation that's not tailored to older folks. The COLAs are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) -- which tracks changes in the average prices of household goods such as food, housing and transportation. It's focused on costs borne by workers more than retirees.

A better measure for calculating Social Security COLAs would be the Consumer Price Index for the Elderly (CPI-E), which weighs categories such as healthcare and housing more heavily.

Thus, many seniors aren't fully keeping up with inflation. The Senior Citizens League (TSCL) has reported that the purchasing power of Social Security benefits has fallen by 20% since 2010. So every $100 in benefits received in 2010 would only buy around $80 worth of goods and services today -- and that's with COLAs.

There's trouble with Social Security itself

The insufficient increases in Social Security benefits are a meaningful problem, but there's a bigger one to worry about -- the health of Social Security itself.

Social Security has run a surplus for many years, but with many people living longer and/or retiring earlier, the surplus has been running out. More money is being paid out than is coming in, and the program's surplus is expected to run dry in a few years.

If nothing is done, Social Security's trust funds' surplus will run out around 2033, which will result in benefits shrinking to about 77% of the amount due to beneficiaries. (President Donald Trump's "big, beautiful bill" has played a part in a faster depletion of the surplus.) If you suddenly end up collecting 23% less than you're due in benefits, a 2.8% COLA or even a 5% COLA will be cold comfort.

Fortunately, there are a bunch of proposed ways to fix Social Security. For example, more of or all of wages could be taxed for Social Security instead of capping that at $176,100 (for 2025). Also, the tax rate on wages might be increased.

Even a small increase could deliver a lot more money to Social Security's coffers. It simply requires Congress taking action, which Congress may or may not due. (It doesn't hurt to contact your representatives and let them know of your concerns.)

What to do about Social Security

If you still have some years before you retire, you may want to factor the current shakiness of Social Security into account in your retirement planning. You might, for example, aim to build a hefty portfolio of dividend-paying stocks that can provide additional income (that's likely to increase over time).

You might look into buying one or more fixed annuities before retiring, in order to set up a fairly reliable income stream. There are multiple retirement income streams you might have, all of which could reduce your dependence on Social Security.

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