If someone were to offer you a $2,000 raise in the new year versus a $3,000 raise, which one would you take? Most likely, you'd opt for the larger number, and understandably so.
But what if that larger number came at the cost of something else -- for example, an uptick in your health insurance premiums or your employer taking away your parking stipend? Suddenly, that larger raise wouldn't seem so appealing.
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Such is the situation seniors on Social Security are facing in the context of their upcoming cost-of-living adjustment (COLA).
At this point, we're only a few days away from an official 2026 COLA announcement. And there's a good chance Social Security's upcoming COLA will not only be higher than 2025's, but also larger than expected. Whether that's a good thing, though, is up for debate.
Why 2026's COLA may be higher
Social Security COLAs are calculated based on third-quarter changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. The CPI-W measures changes in the spending patterns of employed individuals in cities.
If it seems strange that Social Security COLAs would be based on an index that doesn't measure retiree-specific costs, it's not in your head. Advocates have been pushing lawmakers for years to change the way Social Security COLAs are calculated. For now, though, the CPI-W is the benchmark being used.
Based on recent CPI-W readings, the Senior Citizens League, an advocacy group, is projecting a 2.7% COLA for Social Security recipients in 2026. And there's a chance next year's COLA could come in even higher if inflation picks up in September, which is a possibility given increased pressure from tariffs.
But while seniors on Social Security may prefer to see their benefits get a larger lift than a smaller one, it's important to recognize that a bigger COLA comes with one major drawback.
Seniors on Social Security aren't likely to get ahead
While a bigger Social Security COLA might seem like cause for celebration at first, the problem is that it will come at the cost of higher living expenses and more robust inflation.
As it is, consumers have been battling cost increases since 2021. If inflation ticks upward in September, it could burden countless households that are already feeling squeezed financially.
Retirees on a fixed income may have even less wiggle room in their budgets than the typical U.S. household. Many seniors wind up retiring on Social Security alone due to not having dedicated savings. If living costs rise a lot not just in September, but in the months that follow, it could leave seniors in a serious lurch.
There's also the issue of Medicare Part B hikes to consider. If the cost of Medicare Part B increases a lot from 2025 to 2026, that could erode seniors' upcoming COLA substantially. That's because older Americans who are enrolled in Medicare while receiving Social Security have their Part B premiums deducted from their monthly benefits.
In fact, rising healthcare costs on the whole, which tend to be a big expense for retirees, could whittle down next year's Social Security COLA tremendously even if it comes in higher than expected.
One thing you may want to do is review your Medicare plan choices very carefully during the program's upcoming fall open enrollment period, which starts on Oct. 15 and runs through Dec. 7. Switching plans could lower your costs and help you stretch your COLA.
All told, there's a good chance Social Security recipients will see their benefits increase more in 2026 than they did in 2025. But whether that's a good or helpful thing is certainly questionable.
