The numbers are in -- and better late than never.
One of the side effects of the federal government shutdown was a delay in the release of the September inflation report from the U.S. Bureau of Labor Statistics (BLS). Without this data, the Social Security Administration (SSA) couldn't calculate the Social Security cost-of-living adjustment (COLA) for 2026.
However, the September inflation report came out on Friday morning. The SSA followed quickly by announcing that the COLA for next year will be 2.8%. Retirees now know how much more money they'll receive in 2026. But don't get too excited about it.
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Insufficient funds
The 2026 Social Security COLA will be higher than the 2.5% increase retirees received this year. However, 94% of older Americans think their 2025 "raise" was too low, according to a survey conducted by The Senior Citizens League (TSCL).
Their frustration is almost certainly justified. TSCL's research found that the real purchasing power of Social Security benefits has plunged more than 30% since 2000, even though benefits increased in all but three years.
How can this be? The problem results from the inflation metric used in the COLA calculation: The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Many experts believe the CPI-W underestimates the inflation experienced by retirees because it doesn't weight healthcare and housing costs as much as it should.
Another inflation metric -- the Consumer Price Index for the Elderly (CPI-E) -- is intended to assign weights that better reflect the costs seniors incur. TSCL's analysis determined that if the CPI-E had been used instead of the CPI-W, retirees who filed for Social Security 30 years ago would have been paid almost $14,000 more than they actually received.
Bad timing
Would replacing the CPI-W with the CPI-E solve all of retirees' COLA problems? Nope. There's another issue that isn't so easily fixed. It's related to the timing of the COLA.
I'll explain this issue with an example. Let's suppose your costs go up 3% across the board this year. You pay more for food, fuel, healthcare, housing, and pretty much everything else for 12 months. Let's now assume that the COLA accurately reflects these increased costs. You receive a 3% increase in your Social Security benefits next January.
The problem is that you would have already shelled out more money well before you get even one penny to offset the higher costs. Social Security COLAs always come too late to help retirees pay their higher bills when they actually incur the increased costs.
Unfortunately, a relatively simple solution, such as replacing a metric used to calculate the COLA, doesn't exist for this issue. Retirees will probably always have to pay higher costs upfront and hope their benefits increase enough the following year to cover the additional expenses.
Paying a premium
I hate to be a "Debbie Downer," but there's yet another, even more pressing, problem for retirees. The Medicare trustees project that Part B premiums will jump 11.6% next year. These premiums are deducted from Social Security benefits for most seniors. Because of the higher Part B costs, less of the 2.8% Social Security benefit increase in 2026 will make it to your checking account or savings account than you might expect.
An 11.6% increase would raise the standard Part B premium by $21.50 per month to $206.50. A 2.8% COLA increases the average monthly retirement benefit by around $56. The math is simple but unsatisfactory: Many retirees could have nearly 40% of their COLA reduced by higher Medicare Part B costs.
Any COLA is better than no COLA. But, as I said earlier, retirees shouldn't get too excited about their 2.8% Social Security benefit increase.
