In May, the average Social Security retired-worker check made history by crossing above $2,000 for the first time in the program's storied history. While an average monthly payout of $2,000 is a relatively modest sum, it's nevertheless proved vital to helping aging Americans make ends meet.
Following 23 consecutive years of surveys from Gallup, we've learned that between 80% and 90% of retirees consistently lean on their Social Security income, in some capacity, to cover their expenses.
Considering how many people rely on Social Security as their financial foundation, the annual reveal of the program's cost-of-living adjustment (COLA) during the second week of October is important and highly anticipated.
Though we're still in the estimating stage of Social Security's 2026 COLA, it nevertheless appears to be on track to do something no one has witnessed this century.
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Why is Social Security's cost-of-living adjustment so important to retirees?
Before diving into this potentially history-making moment in 2026, it's imperative to understand what Social Security's cost-of-living adjustment is and why it's so important for retirees.
The best way to view Social Security's COLA is as the mechanism that attempts to mirror the effects of inflation (rising prices) on benefits. For example, if a large basket of goods and services regularly purchased by seniors climbs in cost by 4%, Social Security benefits would need to increase by the same percentage to avoid a loss of buying power. Social Security's COLA is what determines how much of a "raise" beneficiaries receive in the upcoming year.
Before 1975, there wasn't a plan for passing along COLAs. Rather, special sessions of Congress doled out arbitrary raises 11 times from 1940 through 1974.
Beginning in 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) became the inflationary measure that America's leading retirement program relied on to dole out annual benefit increases. The CPI-W sports more than 200 spending categories, each of which have their own unique percentage weightings. It's these weightings that allow the CPI-W to be expressed as a single figure each month, making for simple year-over-year comparisons to determine if prices are, collectively, rising (inflation) or falling (deflation).
Although the CPI-W is reported monthly by the U.S. Bureau of Labor Statistics (BLS), only readings from July, August, and September factor into Social Security's COLA calculation. If the average CPI-W reading from the third quarter of 2025 is higher than the comparable period in 2024, beneficiaries can expect a larger monthly payout come 2026.
A historic expansion of U.S. money supply during the pandemic sent the prevailing rate of inflation, and Social Security COLAs, notably higher. U.S. Inflation Rate data by YCharts.
A history-making moment may be in the cards for Social Security's 2026 COLA
Throughout the 2010s, Social Security's cost-of-living adjustments were nothing to write home about. There have only been three years since 1975 when deflation took place and no COLA was passed along, and they all occurred during the 2010s (2010, 2011, 2016). This time period is also home to the smallest positive COLA on record -- a meager 0.3% in 2017.
But Social Security payouts have climbed at a considerably faster pace during the 2020s than they have in decades. Specifically, a record-breaking year-over-year increase in M2 money supply of more than 26% during the COVID-19 pandemic's height sent the prevailing rate of inflation soaring domestically. This led to respective Social Security COLAs of 5.9% in 2022, 8.7% in 2023 (the highest on a percentage basis in 41 years), 3.2% in 2024, and 2.5% in 2025.
Collectively, the four most recent cost-of-living adjustments have come in above the average increase of 2.3% since 2010.
Following the release of the May inflation report from the BLS, Social Security policy analysts updated their forecasts for the 2026 COLA. Nonpartisan senior advocacy group The Senior Citizens League (TSCL) upped its cost-of-living adjustment projection by a tenth of a percent for the third consecutive month, to 2.5%. Meanwhile, independent Social Security and Medicare policy analyst Mary Johnson, who retired from TSCL last year, also increased her 2026 COLA estimate to 2.5%.
A 2.5% COLA would represent about a $50-per-month boost to the average retired-worker check next year. The average monthly payouts for workers with disabilities and survivors of deceased workers would climb by a more modest $40 and $39, respectively, in 2026.
But what would make the 2026 cost-of-living adjustment special is that it would mark the fifth consecutive year of at least a 2.5% boost to payouts. The last time Social Security's COLA was 2.5% or greater for five consecutive years was 1987 through 1996, when COLAs came in between 2.6% on the low end to 5.4% on the high end.
To reiterate, we haven't even reached the months that count toward the COLA calculation, so expect estimates to shift modestly. But if the current forecasts do prove accurate, we'll be witnessing something that hasn't occurred in three decades.
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Social Security benefits can make history and still disappoint retirees
If Social Security benefits were to climb at an above-average pace for a fifth straight year (relative to the average COLA since 2010), most recipients would probably believe they're getting ahead -- but this couldn't be further from the truth.
According to an analysis published by TSCL in July 2024, the purchasing power of a Social Security dollar has declined by a stark 20% since 2010. This updated study followed a May 2023-released analysis from TSCL that found a whopping 36% reduction in the buying power of Social Security income between January 2000 and February 2023.
The culprit for this persistent decline in the purchasing power of a Social Security dollar is none other than the CPI-W. Though you'd think an encompassing inflationary index would be accurately tracking the pricing pressures program recipients are contending with, the CPI-W's full name exposes its flaw.
This is an index that specifically tracks the spending habits of "urban wage earners and clerical workers," who are, in many instances, working-age people not currently receiving a Social Security benefit. People in their 20s and 30s are spending their money very differently than retirees. Whereas the former allocate a higher percentage of their monthly budget to things like education and transportation, seniors spend a larger percentage on shelter and medical care services than working-age Americans.
Even though 87% of Social Security recipients were 62 and older, as of December 2023, the inflationary measure the program relies on doesn't take into account the added importance of shelter and medical care service costs. This leads to cost-of-living adjustments that fail to match the inflationary pressures retirees are facing.
As long as the trailing 12-month inflation rate for shelter and medical care services is higher than the projected and/or actual COLA, this loss of buying power will only worsen and disappoint retirees.
