More than 58 million seniors collect Social Security retirement or survivor benefits every month. For many, it's not just a monthly check, but a lifeline to ensure they can make ends meet in retirement. The Social Security Administration estimates 39% of men and 44% of women over age 65 receive at least half of their income from the government program.
For those households, the annual cost-of-living adjustment (COLA) is extremely important. It's meant to ensure they can keep up with their bills and pay for groceries every week. While we won't receive the official COLA number until mid-October, there's good reason to expect next year's benefits bump to come in above the average for the past 15 years.
But retirees collecting Social Security probably shouldn't be celebrating another year with an above-average COLA.
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The nitty-gritty details about your annual COLA
The government uses a relatively simple system to determine how much to increase Social Security benefits. It's all based on a measure of inflation called the Consumer Price Index for Urban Wage Earners and Clerical Workers, referred to as the CPI-W.
The CPI-W is developed by the Bureau of Labor Statistics (BLS). It surveys thousands of businesses and households across the country to collect pricing data on over 200 different line items. It then weights those prices, according to a theoretical basked of goods based on the typical spending patterns of working-age adults living in cities. (There are other measures of inflation that use the same price data with different weights.) Every month, the BLS publishes a new CPI-W number based on the latest survey information.
The government uses the CPI-W numbers from the BLS to calculate the COLA each year. Specifically, it takes the average year-over-year increase in the inflation measure during the third quarter, which runs from July through September.
We've already received the July CPI-W number. It came in at 2.5%. However, muted month-over-month growth last summer could lead to bigger year-over-year increases in August and September this year. On top of that, higher-than-expected inflation in wholesale pricing last month could lead to higher consumer pricing over the next two months. As a result, both The Senior Citizens League and independent Social Security analyst Mary Johnson expect the 2026 COLA to come in at 2.7%.
The average COLA since 2010 has been 2.3%. A 2.7% bump would be well above average and an increase from last year's 2.5% COLA. But there's an important detail retirees can't overlook.
Why a big COLA might not be so great for retirees
There's a big problem with how the government calculates the annual COLA for retirees. It uses a measure of inflation weighted toward the spending patterns of working-age city dwellers. Most retirees spend their money differently than they did when they were working.
They probably don't spend as much money on commuting or clothing. They probably have much higher medical bills. Their dining habits are probably different too. Suffice it to say, the CPI-W isn't a great measure of the actual increase in costs for most senior households.
Over time, seniors have seen the purchasing power of their Social Security checks erode, according to a study by The Senior Citizens League. Its analysts estimate someone who started Social Security in 2010 has seen their benefits lose 20% of their purchasing power due to the discrepancy in the annual COLA and the real experienced inflation for seniors.
Seniors may be on track to see another year of diminishing buying power in 2026. Some of the biggest expenses for seniors are housing, transportation, and medical care. Those categories increased 3.7%, 3.5%, and 4.3%, respectively, in the most recent CPI data.
Seniors do best with slow and steady inflation. Volatile pricing with big and hard-to-predict jumps in the amount consumers pay for certain products and services can lead to CPI numbers that don't align with the real costs seniors face from month to month. As such, the expectations for an above-average COLA in 2026 probably mean another tough year for retirees, especially those relying on their monthly Social Security benefit.
