Social Security and Supplemental Security Income recipients are about to learn how much their benefits will rise next year. Due to a federal government shutdown, the adjustment announcement originally set for October 15 has been pushed to Friday. Around 75 million people will see the increase reflected in their January payments.
Experts project that the 2026 Cost-of-Living Adjustment (COLA) could be between 2.7% and 2.8%, based on the most recent Consumer Price Index data, which aligns with the long-term average. However, for many retirees and others who count on these payments for basic necessities, even larger adjustments may not significantly ease the burden of rising costs.
“I wish there were more,” expressed Kathryn Bailey, 74, a Washington, D.C. resident.
Bailey, who used to work as an oncology researcher, recalls the 8.7% increase implemented in 2023 due to a post-pandemic inflation surge, the highest in 40 years. She noted that the additional $135 she received at that time “helped, but I spent it all.” The anticipated increase for 2026 “doesn’t help us at all,” she mentioned, pointing out soaring expenses in medical care, rent, and food.
Retiree expenses surpass inflation rates
Experts estimate that the expected 2.7% to 2.8% adjustment in 2026 will add roughly $54 to the average retirement check. COLAs are calculated based on inflation rates; the higher the inflation, the more substantial the adjustment. Conversely, low inflation results in modest adjustments. In some years, like 2016, inflation didn’t even increase, leading to no adjustments at all.
While inflation has decreased recently, COLAs for retirees have also become more modest. The adjustment for 2024 was set at 3.2%, while this year, it was only 2.5%. Over the past two decades, the average COLA has been about 2.6%, as reported by the Alliance on Seniors.
A recent Goldman Sachs Asset Management study highlights that retirement costs have been growing faster than inflation. Retirees’ expenditures rose 3.6% annually from 2000 to 2023, compared to a 2.6% rise in the consumer price index.
Despite overall inflation easing in the last couple of years, some costs remain elevated. The Consumer Price Index for Urban Wage and Office Workers, which helps determine the COLA, shows above-average increases in areas like household energy and auto maintenance.
Long-term COLA increases have notable impacts
Some experts argue that the Social Security COLA provides an inflation safety net that’s hard to replicate. “A 20% increase over four years is life-changing, even if it doesn’t completely align with the economy,” mentioned David Freitag, a financial planning consultant and expert at MassMutual. He emphasized that these adjustments can significantly impact people’s lives.
Freitag noted that few income sources offer the kind of annual adjustments that Social Security does, and alternatives are often quite costly.
From age 62 onward, beneficiaries will receive cost-of-living adjustments, which will be recognized when they eventually claim their benefits. AARP CEO Dr. Mietia Minter-Jordan remarked that COLAs are essential for ensuring retirement income keeps pace with inflation, serving as a “lifeline” for many older Americans.
However, she added that even with these adjustments, 77% of seniors struggle to meet basic living expenses, referencing an upcoming AARP study.
Exploring alternatives for future COLA calculations
Certain advocates and experts question whether a different formula might better reflect retirees’ inflation experiences. Groups like the Alliance on Aging have been pushing for the COLA calculation to adopt the Consumer Price Index for the Elderly (CPI-E), which assigns more weight to categories such as healthcare and housing.
Other proposals include switching to a chained CPI that accounts for consumer substitutions due to inflation, like choosing cheaper meats when prices rise.
Conversely, the chief accountant of Social Security noted that using CPI-E would likely boost future annual COLAs by about 0.2 percentage points. Opting for a chained CPI, on the other hand, could lower it by approximately 0.3 percentage points. Adjusting COLA calculations may influence the solvency of Social Security’s trust fund, projected to run out in 2034, leading to reduced benefits unless legislative changes occur sooner.
Another suggestion is to cap COLA increases for those receiving the maximum benefit. Such a plan might help to bridge some gaps in Social Security’s long-term viability while still safeguarding most beneficiaries against inflation.
Bailey voiced her hope that the COLA formula could be recalibrated to truly reflect the actual increases in areas impacting retirees, like healthcare and housing. “I hope they consider the percentages of what has actually gone up,” she said.
