Last October, the Social Security Administration announced that benefits would be rising by 2.5% in 2025. And understandably, many seniors on Social Security were not happy with that news.
This year's cost-of-living adjustment (COLA) was the smallest to come through in years. And it left many seniors struggling to make ends meet.
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Many Social Security recipients are holding out hope for the new year, though, and banking on a larger COLA for 2026. So far, initial estimates do seem to indicate that seniors could be looking at a more generous raise. But that's actually not such a good thing.
What the numbers say so far
Social Security COLAs are based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). In June, the CPI-W rose 2.6% on an annual basis. But it's the July, August, and September readings that matter the most, since they're the numbers that get factored into the Social Security COLA formula.
Based on the most recent CPI-W reading, though, the Senior Citizens League, a nonpartisan advocacy group, increased its estimate for next year's Social Security COLA. The group had initially projected a 2.5% COLA -- the exact raise as in 2025. But in light of that CPI-W uptick, it raised its COLA target to 2.6%.
Clearly, this is only a modest increase, but it's an increase nonetheless. And many seniors are probably hoping for more -- even though they shouldn't.
Why you don't actually want a larger Social Security COLA
When raises are given based on merit or performance, such as in a professional workplace environment, a larger raise is pretty much always better than a smaller one. In the context of Social Security COLAs, though, that same logic does not necessarily apply.
The reason? Social Security COLAs are directly tied to inflation. This means that the only way for a COLA to be more generous from one year to the next is for inflation to pick up. And that is not something anyone on a fixed income should want.
The reality is that with the threat of tariffs looming, we could see a surge in inflation during the third quarter of the year. But while that might put a little more money into seniors' Social Security checks next year, it could also make it much harder for retirees to afford their living costs.
In fact, just a few years ago, Social Security recipients got some of their most generous COLAs in history. But those generous COLAs came on the heels of rampant inflation.
For this reason, it won't necessarily be such a bad thing if 2026's COLA ends up being comparable to 2025's. And you shouldn't automatically get upset if it ends up being a little smaller, either.
If you're struggling to cover your costs, consider reassessing your spending or picking up some part-time work, which you're allowed to do while receiving Social Security. Those changes could do your finances a lot more good than a more generous COLA in the new year.
