Last Friday, The Social Security Administration announced the official 2026 cost-of-living adjustment (COLA). Benefits will increase 2.8% next year, three-tenths of a percentage point more than the pay increase retired workers received this year.
However, the announcement also comes with bad news for Social Security beneficiaries. Tariffs imposed by the Trump administration have caused inflation to increase significantly since April, and many economists expect consumer prices to trend higher in the coming months, which means the COLA is likely insufficient.
Here's what retired workers should know.
Image source: Official White House Photo.
Social Security benefits will get a 2.8% cost-of-living adjustment (COLA) in 2026
Each year, Social Security benefits receive a cost-of-living adjustment (COLA) based on how the CPI-W (a subset of the Consumer Price Index) changes during the third quarter, meaning the three-month period that runs from July through September.
The math is straightforward: The CPI-W from the third quarter of the current years is divided by the CPI-W from the third quarter of the previous year, and the precent increase becomes the COLA in the following year. CPI-W inflation measured 2.8% in the third quarter of 2025, so Social Security benefits will increase 2.8% in 2026.
The chart below details how the COLA will impact the average monthly Social Security payment for different types of beneficiaries.
|
Beneficiary Type |
Average Benefit Before 2.8% COLA |
Average Benefit After 2.8% COLA |
Monthly Increase |
|---|---|---|---|
|
Retired Workers |
$2,008 |
$2,064 |
$56 |
|
Spouses |
$955 |
$982 |
$27 |
|
Survivors |
$1,575 |
$1,619 |
$44 |
|
Disabled Workers |
$1,583 |
$1,627 |
$44 |
Data source: Social Security Administration.
With a 2.8% COLA in 2026, Social Security benefits have now received four straight COLAs of at least 2.5%. That last happened three decades ago. Yet, over half of retired workers surveyed by The Motley Fool said the last two COLAs were insufficient, meaning they did not fully offset increases in living expenses. Unfortunately, the 2026 COLA is likely to disappoint in much the same way for two reasons.
First, the CPI-W underestimates how much retirees spend on housing and medical care, and prices in both categories have risen faster than the overall CPI-W this year, meaning the COLA is likely to underestimate true inflation.
Second, CPI-W inflation is likely to trend higher during the fourth quarter due to the trade policies put in place by the Trump administration, but COLAs only consider CPI-W inflation through the third quarter. Any price increases beyond that point will not be reflected in the 2026 COLA.
President Trump's tariffs have caused a material increase in inflation
President Donald Trump imposed sweeping tariffs on what he labeled "Liberation Day" in April. Included in the announcement was a 10% baseline tariff on most countries, as well as more severe country-specific reciprocal tariffs that were ultimately delayed until August.
Despite Trump's assertion that foreign exporters would "pay for the privilege" of doing business in the U.S., Americans are footing the bill for the trade war. Goldman Sachs estimates U.S. companies and consumers will in aggregate pay 77% of the tariffs by year's end, with consumers alone bearing over half the burden.
In turn, CPI-W inflation climbed from 2.1% in April to 2.9% in September, and many experts think the upward pressure will persist as companies pass along costs on more tariffed products. Twenty economists surveyed by The Wall Street Journal estimate inflation will rise at least two-tenths of a percentage point by December.
That is bad news for retired workers. While annual COLAs reimburse Social Security recipients for the buying power benefits lost in the prior year, they only consider inflation in the third quarter. Any increase in consumer prices in the fourth quarter is not reflected in the next COLA, and there is a good chance inflation will exit the year above 2.8%, in which case a 2.8% COLA will feel insufficient.
Of course, if inflation keeps climbing through the third quarter of 2026, that will be reflected in the 2027 COLA. So, Social Security beneficiaries will eventually be compensated for price increases caused President Trump's trade war. But they will be behind the curve until inflation starts trending lower.
