There's arguably not a social program in America that does a more profound job of fortifying the financial foundations of retirees than Social Security.
Based on an analysis from the Center on Budget and Policy Priorities, Social Security was responsible for pulling more than 22 million people above the federal poverty line in 2023, including approximately 16.3 million adults aged 65 and over. For these folks, there are few, if any, announcements that bear more importance than the annual cost-of-living adjustment (COLA) reveal.
However, this year's COLA announcement was anything but normal. Due to the federal government shutdown, pertinent data needed to calculate benefits for the upcoming year was delayed. The initial announcement date of Oct. 15 was ultimately pushed back to Oct. 24.
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In some ways, the wait was worth the reward. The 2.8% raise announced for 2026 compares quite favorably to other COLAs since 2010. But as you'll see, there's more to this figure than initially meets the eye.
Social Security's COLA serves an important purpose
The cost-of-living adjustment you've been hearing and reading about for months is the tool the Social Security Administration (SSA) has on its proverbial toolbelt to help beneficiaries combat the effects of inflation (rising prices) over time.
Hypothetically, if the cost for a large basket of goods and services regularly purchased by retirees climbs by 3% from one year to the next, Social Security benefits would need to increase by the same percentage, otherwise recipients wouldn't be able to buy as much. Social Security's COLA is the near-annual raise that attempts to mirror the effects of inflation for program recipients.
Prior to 1975, there wasn't any set formula for keeping Social Security payouts aligned with the prevailing rate of inflation. For example, beneficiaries didn't receive a single adjustment during the 1940s, which resulted in the largest-ever benefit increase (about 77%) being passed along in 1950 by a special session of Congress.
Beginning in 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) became the inflationary measure used for calculating annual COLAs. It has north of 200 weighted spending categories, which allows the CPI-W to be reported as a single figure each month. This figure, which factors in trailing 12-month price movements, can be compared to the previous year to determine if prices are, collectively, rising (inflation) or falling (deflation).
Social Security's 2026 raise is making history
When the U.S. Bureau of Labor Statistics released the delayed September inflation report on Oct. 24, it provided the final puzzle piece (the September CPI-W reading) needed to calculate the 2026 COLA, which came in at 2.8%.
In nominal-dollar terms, based on estimates from the SSA, next year's COLA is going to boost the average monthly retired-worker check by $56 to $2,071. Meanwhile, the typical worker with disabilities can expect a $44-per-month raise in 2026 to $1,630.
While a 2.8% payout boost might sound relatively modest, it compares favorably to the COLAs beneficiaries have received in recent memory. Even though it's a smaller increase than the 5.9%, 8.7%, and 3.2% respective COLAs passed along from 2022 through 2024, the average cost-of-living adjustment since 2010 is just 2.3%.
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Looking a bit further back, Social Security's 2.8% raise ties for the ninth-largest year-over-year increase since this century began. It trails the respective COLAs of 3.5% in 2001, 4.1% in 2006, 3.3% in 2007, 5.8% in 2009, 3.6% in 2012, and the aforementioned trio of higher raises from 2022 through 2024.
Perhaps more importantly, Social Security's 2026 cost-of-living adjustment is making history. For the first time this century, Social Security beneficiaries will receive a raise of 2.5%, or greater, for a fifth consecutive year. We have to go back to 1988 through 1997 to find the last time COLAs clocked in at 2.5% or above for at least five consecutive years.
Though the forthcoming 2.8% COLA might feel disappointing considering the largest increase in more than four decades (8.7%) occurred just a few years ago, it's nevertheless an above-average boost to benefits.
Next year's above-average cost-of-living adjustment still misses the mark for most retirees
But it's one thing for Social Security's COLA to compare favorably to previous years, and it's an entirely different story when this raise is compared to the actual inflationary pressures retirees are contending with.
Even though the CPI-W tracks price changes for more than 200 spending categories, its official name gives away its shortcoming. It's an index that follows the pricing pressures faced by "urban wage earners and clerical workers." These are folks who, in most instances, aren't age 62 and above, and aren't currently receiving a retirement benefit from Social Security.
Based on data from the SSA, as of December 2024, 87% of traditional Social Security beneficiaries were 62 and above. Retirees and urban wage earners/clerical workers spend their money differently, which is a problem, because the CPI-W doesn't account for this difference.
Compared to working-age Americans, retirees devote a higher percentage of their budget to shelter and medical care services. As of the trailing 12-month period ended in September, per the Consumer Price Index for All Urban Consumers (CPI-U), which is a similar inflationary measure to the CPI-W, the inflation rate for shelter and medical care services was 3.6% and 3.9%, respectively.
If the prevailing rate of inflation for these important categories continues to outpace the COLAs recipients are receiving, it virtually guarantees a loss of buying power in 2026.
What's more, the June-released 2025 Medicare Trustees Report estimates that the Medicare Part B premium will rise by a scorching-hot 11.5% next year to $206.20 per month. Part B is the segment of traditional Medicare responsible for outpatient services, and it's almost always automatically deducted from the monthly benefit of retired workers.
For dual enrollees -- retirees receiving a Social Security benefit who are enrolled in traditional Medicare -- an 11.5% increase in the Part B premium can offset some or all of their upcoming COLA.
