Every October, the Social Security Administration announces what the next year’s cost-of-living adjustment, or COLA, will be. These COLAs are designed to ensure that retirees’ monthly benefits rise along with the prices people pay for everything from groceries to housing to medical bills. Unfortunately, however, many retirees find that the purchasing power of their benefits has declined over time, despite annual increases.
Social Security recipients had to wait a few extra days for disclosures this year due to the ongoing government shutdown, but the Social Security Administration finally got the last data it needs for 2026. COLA calculated on October 24.
The result: Pensioners will receive a 2.8% increase in benefits from January. And again, most retirees say that won’t be enough to keep up with actual changes in their cost of living. That is why they are right to feel that way.
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One of the best tools for determining how much things cost and how that has changed over time is the monthly Consumer Price Index, a metric created and tracked by the Bureau of Labor Statistics. That’s why Congress adopted the CPI as the official measuring stick for Social Security’s COLA in the 1970s.
Specifically, the Social Security Administration bases its COLA on the third-quarter, year-over-year increase in the Consumer Price Index for Urban Wage and Office Workers, or CPI-W. The CPI-W is designed to track the spending of a large subset of the population as measured by the more commonly cited CPI-U. It tracks the typical expenditure of households where at least one full-time worker is employed in a clerical or wage-earning occupation.
Of course, the third quarter runs from July to September, and the government shutdown prevented the BLS from calculating September’s numbers, but inflation eventually rose to 2.9%. Along with slightly slower price growth in previous months, 2026 The COLA was 2.8%.
The average retiree who received $2,008 in benefits in August will see their monthly benefits increase by about $56 next year.
In a recent survey of 2,000 retirees by The Motley Fool, 54% of respondents said a 2.8% COLA would not be enough to keep up with the cost of living. And 68% said a COLA would help little or nothing when it comes to covering essentials like food, shelter and medical care.
The data backs up that sentiment.
In particular, US inflation, which reached its lowest level in May, has started to rise. This is likely related to the new trade policy announced by President Donald Trump in April. it was found that most of the imported goods were subject to high new duties. Companies are gradually raising prices to offset their additional costs, and this trend may continue for several months as companies adjust to the new environment. As a result, almost all of 2026 a 2.8% COLA may exceed inflation.
Second, the higher inflation we’re experiencing today is on top of the huge price spikes we’ve seen over the past five years. From 2020 in October CPI-U increased by almost 25%. This is an average annual inflation rate of 4.6%.
US Consumer Price Index data by YCharts
Finally, digging into the numbers shows that the CPI-W probably does a poor job of tracking the actual cost of Social Security for seniors. After all, it’s designed to track households headed by working-age people, not retirees. Line items that carry more weight in most seniors’ budgets, such as shelter, utilities, and medical care, are growing faster than the overall CPI-W number.
On top of all that, retirees have experienced a sharp increase in health insurance costs. Most retirees age 65 and older use Medicare. Medicare Part B premiums rose 5.9% this year to $185. But the increase could be even higher next year, with current projections calling for a $206.50 monthly Part B premium. So $21.50 of the average $56-a-month COLA — more than a third — will immediately go toward one rising health care cost.
It will not decrease much in the future either, as it is expected that by 2034 will increase by an average of 7.3 percent annually.
With the annual COLA keeping up with the growth rate of many seniors’ actual expenses, it’s more important than ever for retirees to budget wisely and optimize withdrawals from their retirement accounts. For those who have yet to retire, the past few years have highlighted the importance of saving and investing on your own so you can reduce your reliance on Social Security later.
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in 2026 Social Security’s COLA is official — here’s how much more you’ll get and why most retirees say it’s not enough was originally published by The Motley Fool
