After a delay due to the government shutdown that began on Oct. 1, Social Security announced its most anticipated change of the year: The 2026 cost-of-living adjustment (COLA). Beginning on Jan. 1, 2026, Social Security recipients can expect a 2.8% increase to their monthly benefits.
Retirees will tell you that any increase is better than no increase. After all, it's fairly easy to see the effects of inflation when you visit your neighborhood grocery store, retail store, or, well, seemingly any store.
Even though the 2.8% increase is higher than 2025's 2.5% COLA, I couldn't help but wonder about something I have consistently seen brought up: Should the Social Security Administration (SSA) change how it calculates the annual COLA?
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How Social Security currently calculates the annual COLA
The SSA uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to determine how to set the annual COLA. It's a monthly metric published by the Bureau of Labor Statistics (BLS) that tracks changes in prices for common goods and services, such as food, transportation, some medical costs, housing, and utilities.
Coming to the exact percentage of the COLA is a three-step process:
- Average the CPI-W numbers for July, August, and September (the third quarter).
- Compare the current year's Q3 CPI-W average to the average of the previous year.
- Set the COLA as the percentage difference between the two, rounded up to the nearest tenth of a percentage point.
It's fairly straightforward, and since it's based on objective inflation data, there's no human discretion needed to set the COLA. It essentially sets itself.
For example, the Q3 CPI-W average for 2023 was 301.236, while the average for 2024 was 308.729. This 2.48% increase is how we got 2025's 2.5% COLA. The average for 2025 was 317.265, which was 2.76% higher than 2024, and lands us at the 2.8% COLA for 2026.
If the Q3 CPI-W data is unchanged or less than the previous year's, there's no COLA, but benefits will never be decreased. It's not common, but it has happened three times before.
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What is an alternative way to calculate the COLA?
The issue many people have with the way the COLA is currently calculated is that the purchasing power of Social Security benefits continues to decline. According to the nonpartisan senior advocacy group The Senior Citizens League (TSCL), the purchasing power of Social Security benefits has declined by 20% since 2010.
One recommendation has been to use a different metric to calculate the COLA, such as the Consumer Price Index for the Elderly (CPI-E). Both the CPI-W and CPI-E track inflation, but the CPI-E focuses on the spending patterns of Americans age 62 and older, which works out because 62 is the earliest anyone can claim Social Security.
The U.S. Congress conducted a study examining how the COLA would differ across years when using the CPI-E instead of the CPI-W for its calculation. The study concluded that the COLA using the CPI-E would've been higher in all but six years since 1986. From January 1985 to January 2024, the CPI-E increased by 211%, compared with the CPI-W's 188%.
Below is how CPI-W and CPI-E data compared in the past 10 years.
| Year | CPI-W Increase | CPI-E Increase |
|---|---|---|
| 2025 | 2.5% | 3% |
| 2024 | 3.2% | 4% |
| 2023 | 8.7% | 8% |
| 2022 | 5.9% | 4.8% |
| 2021 | 1.3% | 1.4% |
| 2020 | 1.6% | 1.9% |
| 2019 | 2.8% | 2.6% |
| 2018 | 2% | 2.1% |
| 2017 | 0.3% | 1.5% |
| 2016 | 0% | 0.6% |
Data source: SSA and BLS.
When viewed dollar-wise, the differences between the two may seem slight. For example, a 3% versus 2.5% increase on $2,000 monthly benefits is only a $10 monthly increase. But, again, any increase is better than none.
One caveat is that increased monthly benefits would accelerate the depletion of Social Security's trust fund unless paired with increased revenue. However, that's a problem that can (and should) be addressed by those in charge of keeping the program afloat.
There's no perfect solution to addressing the decreasing purchasing power of Social Security benefits, but it's worth the SSA keeping all options open.
