For close to a century now, the Social Security program has been serving as a lifeline of support to tens of millions of individuals across the country. A significant number of these households rely primarily, or even solely, on their monthly benefit checks to cover their living expenses. So what happens to a budget reliant on a fixed income when inflation persistently rises?
The answer is the annual Cost of Living Adjustment (COLA) whereby all benefits issued by the Social Security Administration (SSA) are increased relative to year over year inflation hikes. The principle behind the COLA is one that is deeply beneficial to Social Security recipients. This, however, only appears to be true in theory, while in practice, the COLA seems to be falling short in addressing its purpose. Here is what you need to know.
2026 COLA
The annual COLA increase is determined by measuring the CPI-W for July, August, and September year over year. If there is an increase, this becomes the next COLA. Since the COLA can be determined as soon as the September CPI is released, the SSA makes its official announcement annually in October. This year, the announcement faced minor delays due to the federal government shutdown, and as such, the 2026 COLA was announced on October 24th instead of the previously scheduled October 15th.
In 2026, all benefits issued by the SSA will be increased by 2.8%. The 2026 COLA is 0.3% higher than the 2025 COLA increase of 2.5%. Relative to the average retiree benefit of $2,008, the 2026 COLA increase will bring seniors an additional $56. A higher COLA will naturally be desired by seniors living on a fixed income as it translates to a higher dollar increase, however, the situation is far more nuanced than this.
Since the COLA is essentially a measure of inflation, a higher COLA means that the cost of goods or services has also increased. The situation worsens when the projected increase for Medicare Part B premiums factors in. The Part B premium, which is automatically deducted from Social Security benefits, is also projected to increase by 11.6% in 2026. This would bring the cost of the premium up from $185 to around $206. Since this premium hike has not yet been confirmed, it has not been factored into the upcoming COLA increase. Once the premium hike and the 2026 COLA increase offset each other, the average retiree will only be looking at around $35 more in their benefit checks in 2026.
TSCL claims COLA formula is to blame for ineffective COLAs
The COLA is determined using the third quarter Consumer Price Index for Urban Wage Earners (CPI-W). The CPI-W measures the spending habits of the current working class who are also presumably much younger than retirees. As such, advocacy group The Senior Citizens League (TSCL) argues that this is the incorrect index to be using in the COLA calculation as it does not factor in major costs faced by seniors.
TSCL advocates for the Consumer Price Index for the Elderly to be used instead as it measures the spending habits of seniors aged 62 and older, which also happens to be the same age cohort as Social Security beneficiaries. According to TSCL, using the wrong index in the COLA calculation is costing seniors thousands of dollars and this loss is only compounding with each passing year.
“The CPI-E has outperformed the CPI-W 69 percent of the time across the last 25 COLAs. On average, the CPI-E comes in at 2.7 percent, while the average CPI-W comes in at 2.6 percent,” as per TSCL’s findings.
“Continuing to calculate COLAs with the CPI-W when the CPI-E is already available is a great example of how Congress refuses to make even small changes that would benefit seniors. It’s not as if switching to the CPI-E would involve setting up some new metric. It already exists, and by definition, it’s better for American seniors,” TSCL executive director Shannon Benton wrote. “If Congress continues to pass the buck on switching to the CPI-E, the problem is only going to get worse and worse. Current retirees’ Social Security benefits will fall further behind inflation, while future retirees won’t just fall behind—they’ll start from the back.”