Social Security plays a huge role in the budgets of many American retirees. About half of households with someone age 65 or older receive at least 50% of their income from Social Security. About one-quarter receive 90% of their income from the government program.
So the annual cost-of-living adjustment, or COLA, is of huge importance for many seniors. Without that bump in payments each year, many seniors would struggle to keep up with the rising costs of housing, healthcare, and groceries.
While we're still a few months away from the official COLA announcement, history can offer some ideas of what to expect for next year. Here's what you need to know.
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How the government calculates your COLA
Congress established automatic cost-of-living adjustments for Social Security based on inflation starting in 1975.
The metric used to determine how much prices have climbed from the prior year is the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as CPI-W. The CPI-W measures the increase in the price of a theoretical basket of goods weighted for the average spending of a working-age city dweller. It includes everything from housing to groceries to clothing to recreation.
The Bureau of Labor Statistics gathers thousands of data points from all around the country every month to calculate the CPI numbers. It releases those numbers monthly, typically in the second week of the month following the survey.
The Social Security COLA is automatically determined by the average year-over-year increase in the CPI-W for the third quarter of the year. So when the Bureau of Labor Statistics releases the September CPI-W numbers in early October, the Social Security Administration is able to announce the following year's COLA.
But considering it's already July, we can look at recent history to get a good idea of what to expect for next year's COLA.
What history says could be coming in 2026
If you want to figure out what next year's COLA will be, you have to start by figuring out what inflation will look like. Luckily, we already have inflation data from the first five months of the year, which is generally the best predictor of what the inflation data will look like over the next few months.
May's CPI-W number was 314.839. That's a 2.2% increase from May of 2024. However, early 2024 saw a rapid increase in inflation before it cooled off in the summer. That means continued increases in inflation from month to month through the end of the summer could result in a much higher cost-of-living adjustment.
Since 1974, when Congress first enacted automatic COLAs based on inflation, the CPI-W reading has increased about 0.65% from May to July, 0.94% from May to August, and 1.3% from May to September.
That includes periods of extreme inflation like the late 1970s and early 1980s. Inflation was even worse in that period than in 2021 through 2023. The Federal Reserve has been able to keep a better handle on inflation since then, so it might make sense to remove or reduce the weight of that period in our analysis. If we look at average inflation since 1985, the increases drop to just 0.41%, 0.61%, and 0.89%, respectively.
If we use the historical average dating back to 1974, next year's COLA will be 3% if inflation increases in line with the average. If we use the historical average since 1983, next year's COLA will come in at 2.6%.
Both of those numbers are above recent forecasts from the Senior Citizen's League and independent analyst Mary Johnson. Both expect a 2.5% COLA for 2026, based on their proprietary models. On the other hand, the Social Security trustees expect next year's COLA to come in between 2.4% and 3%, with 2.7% as their intermediate assumption.
We're still a little over a month away from getting our first data point that counts toward next year's COLA. As we get closer, retirees will get more clarity on what to expect. But based on history and expert models, they can expect a COLA roughly in line with, or perhaps a little higher than, last year's 2.5% increase.
