For retirees, the annual Social Security cost-of-living adjustment (COLA) is one of the most important changes to the program each year. COLAs can increase benefits, giving seniors more money to spend and helping them keep up with rising prices. But while predictions for the 2026 COLA are climbing, that’s not necessarily good news.
How COLAs Are Calculated
The purpose of the COLA is to protect retirees’ purchasing power when inflation pushes prices higher. Each fall, the Social Security Administration (SSA) calculates the COLA using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
The formula looks at the average CPI-W from July, August, and September (the third quarter) compared to the same quarter from the prior year. Any increase becomes the next year’s COLA.
Here’s how inflation has moved so far this year:
| Month | CPI-W Annual Change |
|---|---|
| January | 3.0% |
| February | 2.7% |
| March | 2.2% |
| April | 2.1% |
| May | 2.2% |
| June | 2.6% |
| July | 2.5% |
Inflation had been easing earlier this year but picked up again starting in April. The non-partisan Senior Citizens League (SCL), which tracks COLA trends, has raised its forecast several times. At the beginning of 2024, it predicted a 2.1% COLA for 2026. By May, that rose to 2.5%, and by July, 2.7%.
Why a Higher COLA Isn’t Always Good
At first glance, a larger COLA sounds positive because it means bigger checks. The downside is that COLAs only rise when inflation does. If retirees get a 2.7% COLA, it’s because everyday costs like groceries, housing, transportation, and medical services have gone up.
Even worse, inflation rarely reverses. Prices typically stay high, even if inflation slows. That means retirees are constantly chasing higher expenses with benefits that don’t always fully cover the gap.
Social Security Benefits Are Losing Value
The Senior Citizens League’s 2024 study showed that Social Security benefits have lost 20% of their purchasing power since 2010. Put another way, retirees today can only buy about 80 cents worth of goods for every dollar their benefits once covered.
Over the past 15 years, COLAs have failed to keep pace with inflation eight times. Some of the biggest shortfalls were:
2010: -2.7%
2011: -1.5%
2017: -1.8%
2022: -1.1%
This mismatch happens partly because COLAs are based only on third-quarter inflation data, which may not reflect price spikes during the rest of the year. Another issue is the CPI-W itself, which tracks costs for workers, not retirees, and may underweight expenses like healthcare that seniors spend more on.
The Bottom Line for Retirees
While the 2026 COLA could come in higher than expected, retirees shouldn’t assume this will solve their financial struggles. Larger checks may not be enough to offset rising expenses, especially with the long-term erosion of Social Security’s purchasing power.
That’s why building personal savings, reducing debt, and having additional retirement income sources are critical. Relying solely on Social Security could leave retirees stretched thin.
The annual Social Security COLA is meant to protect seniors from inflation, but history shows it doesn’t always succeed. With forecasts for the 2026 COLA trending higher, retirees may see bigger checks — but also higher bills.
Understanding these limits, and preparing with personal savings, is the best way to stay financially secure in retirement.
