For a majority of the 53 million retired workers who brought home a Social Security check in June, their payout is indispensable. Though the average monthly retired-worker benefit is a fairly modest $2,005, nearly a quarter century of annual surveys from Gallup show that 80% to 90% of retirees lean on this payout, to some degree, to cover their expenses.
For these retirees, nothing is of greater importance than knowing how much they'll be receiving on a monthly basis. This is why October's annual cost-of-living adjustment (COLA) reveal by the Social Security Administration (SSA) is such an anticipated event.
While there's a realistic chance that Social Security's 2026 COLA will do something that hasn't been witnessed in nearly three decades, the unpleasant truth is it still presents as a no-win scenario for retirees.
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Social Security's annual COLA serves an important purpose
Before digging further into the details, it's important to lay the groundwork of what purpose Social Security's cost-of-living adjustment serves, as well as how it's calculated.
Every year, the cost of goods and services regularly purchased by retirees changes. If, for example, the collective cost of a broad basket of goods and services climbs by 2.5% from one year to the next, Social Security benefits would also need to rise by the same percentage to avoid a loss of purchasing power. Social Security's COLA is the "raise" passed along on a near-annual basis to fight back against inflation (rising prices) and a loss of buying power.
Prior to 1975, there was no set formula for COLAs. Only 11 adjustments were passed by special sessions of Congress spanning 35 years, including the largest-ever boost to benefits in 1950 of 77%!
Beginning in 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) became the program's measure of inflation. Its more than 200 individually weighted cost categories allow the CPI-W to be whittled down to a single figure each month, which makes for simple year-over-year comparisons to determine whether prices are, collectively, increasing (inflation) or decreasing (deflation).
When calculating Social Security's COLA, only CPI-W readings from July, August, and September are used (the third quarter). If the average third-quarter CPI-W reading in the current year is higher than the comparable CPI-W reading from the third quarter of the previous year, inflation has occurred and beneficiaries are on track for a "raise" the following year. How much the benefits will increase is determined by the year-over-year percentage difference in average third-quarter CPI-W readings, rounded to the nearest tenth of a percent.
A historic expansion of U.S. money supply sent the prevailing rate of inflation, along with Social Security COLAs, noticeably higher in recent years. US Inflation Rate data by YCharts.
The 2026 cost-of-living adjustment is likely to make history
With most retired-worker beneficiaries relying on their Social Security payout to make ends meet, there's optimism that the 2026 COLA will deliver an above-average increase. Following a period of historically weak COLAs, the last four years have meaningfully increased retirement benefit checks. The rapid expansion of the U.S. money supply during the COVID-19 pandemic caused the prevailing rate of inflation to soar -- and so did Social Security cost-of-living adjustments:
- 5.9% COLA in 2022
- 8.7% in 2023
- 3.2% in 2024
- 2.5% in 2025
To add some context to the above figures, the 8.7% increase in 2023 was the highest on a percentage basis in 41 years. Further, all four "raises" have clocked in above the average COLA of 2.3% over the last 16 years.
The last time Social Security cost-of-living adjustments reached at least 2.5% for five consecutive years was nearly three decades ago. From 1988 through 1997, COLAs ranged from 2.6% to as much as 5.4%. Based on where things are trending, history will be made for the first time in the 21st century in 2026.
Following the release of the July inflation report from the U.S. Bureau of Labor Statistics in mid-August, independent estimates for the 2026 COLA were maintained or boosted. For a fifth consecutive month, nonpartisan senior advocacy group The Senior Citizens League (TSCL) increased its 2026 COLA forecast by a tenth of a percent (in this case to 2.7%). Meanwhile, independent Social Security and Medicare policy analyst Mary Johnson maintained her 2026 COLA estimate at 2.7%.
Both independent estimates have increased recently because of the modest inflationary impact of President Donald Trump's tariffs. Though these figures are just estimates, a 2.7% COLA would lead to an average monthly increase of $54 for retired-worker beneficiaries in the upcoming year.
Image source: Getty Images.
History aside, retirees are facing yet another no-win scenario
Based on the trajectory of the prevailing inflation rate, there's a good chance Social Security's 2026 COLA will make history. Unfortunately, it's not going to be of much help because most retirees are once again facing a no-win scenario.
Superficially, a fifth straight year of an above-average COLA (when looking back at the prior 16 years) is good news. But when the lens is widened a bit to encompass the actual inflationary pressures retirees have been contending with, this good news becomes a mirage.
According to an analysis from TSCL, the purchasing power of a Social Security dollar fell by 20% between 2010 and 2024. In other words, what $100 in Social Security income could buy in 2010 was able to buy only $80 worth of those same goods and services come 2024. This loss of buying power is the result of inherent flaws in the CPI-W.
Social Security's inflationary tether is based on the spending habits of "urban wage earners and clerical workers." Rarely are these folks aged 62 and above and currently receiving a Social Security benefit. Even though 87% of Social Security beneficiaries are aged 62 and above, the inflationary index responsible for measuring COLAs is based on the spending habits of working-age Americans.
With the inflation rate for shelter and medical care services (the two most important expenses for retirees) handily outpacing the estimated COLA for 2026, there's a high probability of further losses to purchasing power. Even in the event that the prevailing rate of inflation for shelter and medical care services slows, most retired-worker beneficiaries will see some or all of their 2026 cost-of-living adjustment gobbled up by a soaring Medicare Part B premium. Part B is the segment of Medicare that's responsible for outpatient services.
If you receive Social Security benefits and are enrolled in traditional Medicare, your Part B premium is usually deducted from your Social Security payout. Based on estimates from the 2025 Medicare Trustees Report, the Part B premium is forecast to climb by 11.5% to $206.20 per month in 2026. This would represent the biggest percentage increase since 2022 and would, almost certainly, eat up a good portion of the estimated 2.7% COLA being passed along to beneficiaries.
Regardless of where the needle lands, Social Security's 2026 cost-of-living adjustment presents its 53 million retired-worker beneficiaries with a no-win scenario.
