Will 2026's Social Security COLA Hold Up to Inflation? Here's What We Know So Far.

The start of a new year is a great time to assess your income and spending and get onto a budget that works for you. This holds true whether you're still a member of the labor force or you're retired.

If you fall into the latter category, it may be that Social Security is a significant income source of yours. If so, you may be banking on your upcoming cost-of-living adjustment, or COLA, to boost your income nicely.

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But will Social Security's 2026 COLA hold up well to inflation? While it's too soon to know for sure, history tells us it may fall short.

A 2.8% raise may not go so far

In 2026, Social Security benefits are getting a 2.8% COLA. That's a slightly larger raise than the 2.5% COLA seniors received at the start of 2025.

Initial data tells us that 2026's COLA may hold up reasonably well to inflation. In November, inflation rose 2.7% annually, per that month's Consumer Price Index (CPI). If inflation continues to trend downward, it should take some pressure off of consumers, seniors included, and make a 2.8% raise fairly effective.

The problem, though, is that tariffs are a big wild card. And they could go either way as far as inflation goes.

If tariffs drive prices up broadly, that could lead to higher levels of inflation in 2026 that outpace seniors' 2.8% COLA. On the other hand, tariffs could fuel a broad economic slowdown and an uptick in unemployment on a national scale. If that happens and consumer spending declines, prices could drop, leading to lower inflation.

Which scenario will play out? It's anyone's guess at this point.

The general problem with Social Security COLAs

While it's good to be optimistic that this year's Social Security COLA will do a lot for seniors, the reality is that those COLAs have a long history of letting retirees down. And a big reason boils down to a core problem with the way they're calculated.

Social Security COLAs are based on third-quarter changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a subset of the CPI. The CPI-W, however, tracks inflation primarily for wage earners, not retirees (hence the name).

Seniors on Social Security tend to spend a larger portion of their income on healthcare than working people do. But that's not reflected in the CPI-W, which is why it's a generally poor measure for calculating COLAs.

Some senior advocates have been pushing to change the way Social Security COLAs are calculated. They've argued that using a senior-specific index could result in COLAs that leave retirees with more buying power in the face of inflation.

But as of now, that's just a wish -- not reality. And since lawmakers have their hands full trying to stave off Social Security benefit cuts in the coming years, they may be less apt to worry about a long-standing COLA formula for the time being.

All told, it's hard to know if 2026's Social Security COLA will do a good job of protecting seniors' buying power or not. But if you're worried that your COLA will fall short, you may want to consider other changes to improve your financial picture. Those could include going back to work part-time or relocating to a part of the country where costs are lower.

If you're close to retirement, recognize the limitations of Social Security COLA, and try your best to set yourself up with a nice amount of savings. The more money you bring into retirement, the less dependent on Social Security -- and COLAs -- you might be.

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