Every year, around the month of October, Social Security beneficiaries wait for an announcement by the government. This specific announcement is the Security cost-of-living adjustment, or COLA. In simple terms, the COLA adjustment is meant to help beneficiaries keep up with the rising cost if the economy. For 2026, the government is warning that while the increase could be one of the biggest in decades, it might not feel like good news once the dust settles.
A Raise That Looks Big on Paper
Current data predicts that the COLA for 2026 will be around 2.7%. Now, some may think that this sounds small right? However, it’s one of the strongest increases in more than a decade. Let’s look at an example of:
To put this into perspective:
- A retiree currently receiving $2,000 per month could see an extra $54 per month starting in January 2026, even though that sounds pretty less, it adds up at the end of the year.
Why Big COLAs Aren’t Always Good News
Now, on the surface, a large COLA might seem like a positive thing because it helps beneficiaries keep up with the rising costs of the economy. However, let’s unpack why a large COLA might not be so good after all:
Firstly, a larger COLA means the SSA needs to spend more money on Social Security and the Social Security Trust Fund which pays the benefits, is already projected to be depleted by 2034 if no changes are made. Should this happen, beneficiaries could only expect about 77% of their benefits to be paid.
Simply put, when the COLA is large, the SSA has to send out bigger checks every month and this will drain the Trust Fund faster than anticipated.
Congress would therefore have less time to address a significant financing issue. Benefits will be automatically reduced if lawmakers are unable to find a solution in time.
When Will the COLA Be Announced?
The official 2026 COLA will be announced in October 2025, after inflation data is finalized.
Who Gets Hit the Hardest
- Current Retirees may face the challenge of their Social Security checks being cut if funds run out.
- Future Retirees (Younger Workers) could see reduced benefits in retirement if depletion happens earlier.
- Low-Income Seniors would struggle to manage essential expenses if cuts are put in place.
Who Could Still Come Out Ahead
It won’t feel like a squeeze to everyone. The additional money may nevertheless be helpful to retirees with minimal living expenditures and small medical bills. Additionally, people are less likely to be negatively impacted by the possible if they combine Social Security with other savings.
What Retirees Can Do Now
- Keep track of updates in October and make sure you know when the COLA will be announced.
- Be sure to plan your budget in advance and prioritise essential expenses first.
- Look into other support programs if you are unable to manage with Social Security only.
The Bottom Line
Even though a large COLA may feel like a win for beneficiaries, it’s important to read between the lines. Beneficiaries must be mindful of the effects of a large COLA. The Social Security Trust Fund is already predicted to run dry by 2034 and this could lead to potential benefit cuts if no changes are made.
With that being said, it is crucial for beneficiaries to start planning in advance and ensure that they budget accordingly. Try and look into other savings or investments apart from just Social Security alone.
Beneficiaries must be sure to follow updated and verified information and seek financial assistance from an expert, if they need help with making financial decisions.