Social Security is a lifeline for millions of retirees, providing crucial financial support to help cover daily expenses. In fact, recent data shows that Social Security lifted 22.7 million people above the federal poverty line in 2022, with 16.5 million of them being adults aged 65 and older. A survey by The Senior Citizens League (TSCL) revealed that nearly 67% of seniors depend on Social Security for more than half of their annual income.
Given its importance, retirees closely watch the annual cost-of-living adjustment (COLA), which helps benefits keep pace with inflation. The early projection for Social Security’s 2026 COLA is now available, and it presents both good and bad news for retirees.
Why Social Security’s COLA Matters
Social Security’s COLA is designed to ensure that benefits maintain their purchasing power in the face of rising prices. Each year, the Social Security Administration (SSA) adjusts payouts based on inflation, which is measured using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
For example, if the cost of goods and services increases by 3% in a given year, Social Security benefits should ideally rise by the same percentage. Without COLA, retirees would struggle to afford essential expenses as prices climb over time.
Before 1975, COLA adjustments were made sporadically by Congress. However, since then, annual adjustments have been based on CPI-W data, specifically from July through September. If inflation increases during this period compared to the previous year, benefits go up.
What to Expect for 2026
Over the past four years, retirees have seen above-average COLAs due to rising inflation. From 2022 to 2025, COLAs came in at 5.9%, 8.7%, 3.2%, and 2.5%, respectively. These increases provided significant boosts to Social Security checks, helping retirees cope with higher living costs.
However, early projections suggest that the 2026 COLA may be more modest. According to TSCL, cooling inflation is expected to result in a 2.1% increase—the smallest in five years. While this is slightly below the 15-year average of 2.3%, it still represents an increase that will provide retirees with additional income.
With inflation easing, factors such as lower energy prices and declining vehicle costs contribute to this conservative forecast. If the 2.1% projection holds, the average retired worker could see their monthly benefit increase by about $41, reaching approximately $2,017 per month. Meanwhile, disabled workers and survivor beneficiaries could see increases of around $33 and $32 per month, respectively.
The Good and the Bad
While a lower COLA may seem concerning, it does have its advantages. Slower inflation means retirees won’t face the steep price hikes seen in recent years. This can provide some relief for those on fixed incomes who are worried about covering basic needs.
However, the downside is that a modest COLA may not be enough to keep up with the rising costs of essentials like housing and healthcare. Retirees typically spend a larger portion of their budgets on these necessities, and recent data shows that shelter costs have risen by 4.6% and medical care by 3.4%—well above the projected COLA.
Over time, the purchasing power of Social Security benefits has declined. A study by TSCL found that the buying power of a Social Security dollar has dropped by 20% since 2010. This trend highlights the importance of budgeting carefully and exploring additional income sources to maintain financial stability.
Planning Ahead for Retirement
Given the potential for smaller COLAs in the coming years, retirees should take proactive steps to protect their financial well-being:
- Review Your Budget: Take a close look at your monthly expenses and find areas where you can cut costs if needed.
- Consider Additional Income Streams: Whether through part-time work, investments, or rental income, finding ways to supplement Social Security can provide a financial cushion.
- Optimize Your Benefits: Delaying your claim can result in higher monthly payments, which may help offset smaller COLAs in the future.
- Stay Informed About Policy Changes: Social Security reforms are often discussed in Congress, and being aware of potential changes can help you plan accordingly.
Final Thoughts
While the projected 2026 COLA might not be as high as recent years, retirees should focus on the positive aspects of cooling inflation while also preparing for the challenges ahead. Social Security remains a vital source of income, but smart planning and financial awareness can help retirees make the most of their benefits.
By staying informed and taking action now, retirees can better navigate the road ahead and enjoy a more secure retirement.
