After much anticipation, the Social Security Administration (SSA) finally announced the 2026 Cost-of-Living Adjustment (COLA), and it will be a 2.8% increase. Yes, it may sound like good news right, who wouldn’t want a bigger check? The problem is that a COLA increase doesn’t always mean that things are getting better.
It simply means that inflation is increasing. The aim of COLA is to help retirees keep up with the rising costs of inflation.
Higher Inflation, Smaller Gains
The 2026 COLA is indeed slightly higher than the COLA for 2025, which was 2.5%, but the reason for this is that the cost of living keeps increasing.
The SSA calculates COLA based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This tracks the spending pattern of working-class individuals.
The problem is that a 2.8% increase also means inflation is well above the Federal Reserve’s 2% target. Unfortunately, for retirees, this means that their money is going as far as it used to.
The “No-Win Situation” Retirees Face
The catch 22 situation is that when inflation is low, retirees get very small increases and when inflation is high, they get bigger increases, however, the prices of goods and services also increase rapidly, and this eats away the increase.
Seniors find it challenging to keep up with this vicious cycle. Their grocery expenditures, rent, and fuel prices frequently increase even more than the money that appears to be somewhat higher in their bank account.
Medicare Will Take Another Bite
Social Security benefits will increase next year, and so will Medicare premiums. Now for many retirees, Medicare premiums are taken directly from their Social Security benefits, this will simply offset the increase that they will receive.
Retirees are urged to check their net payment so that they understand how much benefits they will actually receive.
Rising Prices Are Outpacing Benefits
A study by The Senior Citizens League (TSCL) found that benefits have lost around 36% of their buying power since 2000.
Seniors spend most of their money on healthcare and housing, and the prices of this is increasing rapidly. Therefore, even though retirees receive the slight increase, they are still struggling to keep up.
Why the COLA Formula Falls Short
The COLA is calculated based on the CPI-W which tracks the spending pattern of working-class individuals and not retirees. This does not reflect the accurate spending pattern of the elderly population therefore the COLA may not be accurate.
There are many experts who are requesting that the COLA be calculated by using the CPI-E (Consumer Price Index for the Elderly) as this reflects the accurate spending pattern of retirees. This will reflect a more accurate COLA, if used.
What Retirees Can Do
While retirees can’t control inflation or how COLA is calculated, there are still ways to protect their finances:
- Make sure you go through your Medicare premiums so that you are aware of what you are paying for and not paying any unnecessary fees.
- Be sure to track your monthly expenses.
- Try and look at your budget see if you can cut down unnecessary expenses.
- If possible, try to delay withdrawing your benefits, this will give more time for your savings to grow.
It’s important to make wise decisions now to secure your financial future.
The Bottom Line
The 2.8% COLA for 2026 may indeed sound like a win, but it simply just means that retirees are having a harder time to keep up with inflation. Even though the benefit is higher, the cost of living has also increased and it’s becoming difficult to keep up with the rising costs.
Beneficiaries should keep themselves updated with the changes related to Social Security so that they are aware of what’s happening with their benefits.