A growing number of retirees are heavily reliant on Social Security to make ends meet.
In the most recent iteration of an annual poll from Gallup, 62% of retirees said Social Security is a major source of income for them. That's up from 60% last year. Another 24% said their monthly benefits represent a minor (although meaningful) source of income in retirement.
For any retiree using Social Security payments as a key factor in planning their budgets, few things have a bigger impact on their spending plans than the annual cost-of-living adjustment, or COLA. The COLA is designed to help Social Security payments keep up with the rising cost of goods and services, but many seniors have suffered in recent years as inflation has pushed prices higher on just about everything.
While there is still two months until the official COLA for 2026 will be available, retirees just received the first data point necessary to determine how much they will receive next year. Here's where things stand now.
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How the government calculates the COLA
Before diving into the latest data point, it's important to understand exactly how the Social Security Administration (SSA) calculates the COLA each year.
Many people know the COLA is tied to inflation, but there's a very specific measure of inflation used to determine the exact number. It's called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The index is calculated monthly by the Bureau of Labor Statistics based on surveys of prices taken throughout the nation. There are over 200 price categories catalogued, and each receives a specified weight in calculating the total index.
To determine the COLA, the SSA only looks at CPI-W readings from the third quarter (July through September). The year-over-year increase in the average CPI-W from those three months becomes the COLA for the following year.
The BLS published the July CPI numbers on Aug. 12. That's the first data point necessary to determine next year's COLA. The August CPI numbers will come out on Sept. 11, and the September numbers will come out on Oct. 15. At that point, all of the necessary data will be available to calculate the 2026 COLA.
Here's where the 2026 COLA stands now
The July CPI report came in lower than expected. The commonly reported CPI-U came in 2.7% higher than last year. However, core CPI, which removes volatile food and gas prices, came in above expectations, increasing 3.1% year over year. A higher core CPI number suggests seniors could face significant pressure in keeping up with rising costs next year, as food and fuel prices do eventually move higher.
The CPI-W increased 2.5% year over year, reaching 316.349. That's a month-over-month increase of 0.1%.
Using the most recent month-over-month increase in inflation to model the next two months of CPI-W numbers, the 2026 COLA will come in around 2.6%. Using the average increase over the last three months, it'll come in around 2.7%. Both numbers are an increase from the 2025 COLA of 2.5%.
There are good reasons to expect inflation to come in higher over the next two months. Specifically, the Trump tariffs announced in April have mostly been delayed until August. While businesses have worked to stockpile inventory ahead of the tariffs in order to keep their pricing low, they will eventually have to factor in the increased tax on imports and raise pricing if they want to maintain their profit margins.
The Senior Citizens League estimates next year's COLA will be 2.7%, raising it from their 2.6% estimate last month. Independent analyst Mary Johnson also expects a 2.7% COLA for next year in light of the most recent CPI-W data. The Social Security Board of Trustees put its estimate at 2.7% when it released its annual report in June.
As those estimates converge, it's likely the best guess. The data and trends support a 2.7% COLA for 2026, and unless there's a massive disruption in pricing over the next eight weeks, that's what retirees should expect to see.
