For most retirees, Social Security income is foundational to their financial well-being. Nearly a quarter-century of annual surveys from national pollster Gallup has shown that 80% to 90% of aged beneficiaries rely on their monthly payout to cover some portion of their expenses.
For these tens of millions of Americans, the annual cost-of-living adjustment (COLA) reveal is one of the most-anticipated announcements of the year. While the prospect of receiving a larger monthly benefit check in the upcoming year is exciting, a grim reality awaits. Namely, most retirees will witness some or all of their announced raise offset in 2026.
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Social Security's COLA clocks in at a historic 2.8%
Social Security's cost-of-living adjustment is the near-annual raise passed along to beneficiaries that accounts for the inflationary pressures they've contended with over the previous year.
For instance, if a large basket of goods and services regularly purchased by retirees increases in price by 3% from one year to the next, Social Security benefits would need to climb by the same percentage to avoid a loss of buying power. Social Security's COLA is the mechanism that attempts to mirror this change in prices.
Since 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has been the inflation-measuring yardstick for Social Security. Following a nine-day delay caused by the federal government shutdown, the Social Security Administration (SSA) announced a 2.8% COLA on Friday, Oct. 24.
Based on the SSA's 2026 COLA Fact Sheet, the average retired worker will see their monthly benefit check rise by an estimated $56 to $2,071 come January 2026. For the more than 7 million workers with disabilities currently receiving a payout from Social Security, their average monthly benefit will increase $44 per month to $1,630 with a 2.8% COLA.
Although a 2.8% raise is notably lower than the 5.9%, 8.7%, and 3.2% COLAs passed along in 2022, 2023, and 2024, respectively, it's still historic in two aspects.
For starters, it marks the first time since 1997 that Social Security beneficiaries have enjoyed five consecutive years with COLAs of at least 2.5%. From 1988 through 1997, annual benefit increases clocked in between 2.6% and 5.4%.
The other bit of history involves President Trump's tariff and trade policy boosting the announced 2.8% raise.
Last December, four New York Federal Reserve economists writing for Liberty Street Economics published a report (Do Import Tariffs Protect U.S. Firms?) which examined the impact Trump's China tariffs had on stocks and U.S. businesses back in 2018-2019. What economists discovered was a reliance on input tariffs, which provided an upward lift on domestic prices.
An input tariff is a duty placed on an imported good used to complete the manufacture of a product in the U.S. This type of tariff can make domestic production costlier, resulting in higher inflation and a larger COLA for beneficiaries.
Retirees can likely kiss some or all of next year's raise goodbye
In a perfect world, Social Security's annual COLA would take into account all of the expenses that matter to aged beneficiaries. As of December 2024, 87% of traditional program recipients were age 62 and above.
However, a deeper dive reveals a number of well-defined shortcomings that are likely to result in retirees kissing some, or perhaps all, of their 2.8% raise in 2026 goodbye.
The root of Social Security's COLA dilemma for retirees starts with the CPI-W. While this index is a much better solution than having Congress pass arbitrary benefit increases without rhyme or reason, which was the standard from 1950 through 1974, it nevertheless results in retirees getting the short end of the stick more years than not.
As its full name shows, the CPI-W tracks the expenses that matter most to "urban wage earners and clerical workers." These are typically people under the age of 62 who aren't currently receiving a traditional Social Security benefit.
The dilemma is that retirees spend a higher percentage of their monthly budget on shelter and medical care services than urban wage earners and clerical workers. The CPI-W doesn't account for this added importance to retirees in its formula.
What's more, September inflation data highlighted a 3.5% trailing-12-month (TTM) inflation rate for shelter and a 3.9% TTM inflation rate for medical care services. The inflation rate for these two important expenses has been increasing at a faster pace than Social Security's COLAs on a fairly regular basis, which results in a loss of purchasing power for aged beneficiaries.
The other reason select retirees can likely kiss some or all of their 2.8% raise goodbye in 2026 is the expected increase in the Medicare Part B premium -- the portion of Medicare responsible for outpatient services.
This concern is specific to dual enrollees: retirees currently receiving a monthly Social Security benefit who are also enrolled in traditional Medicare. Nearly all dual enrollees have their monthly Part B premium automatically deducted from their Social Security payout.
In mid-June, the Medicare Trustees Report forecast an 11.5% increase in the Part B premium to $206.20/month in 2026 from $185/month in 2025. Though the hold harmless provision ensures that Social Security benefits can't fall from one year to the next because of higher Part B premiums -- this is an especially helpful rule for lifetime low earners -- this double-digit projected increase in Part B has the potential to offset some or all of next year's 2.8% raise for dual enrollees.
