Social Security retirees had their biggest update of the year last month when the Social Security Administration (SSA) announced the program's 2026 cost-of-living adjustment (COLA), which determines how much benefits will rise next year.
The announcement came a little later than normal due to the government shutdown, but the SSA was still able to announce the 2026 COLA in October. Here's what it means for retirees.
How the COLA is determined
The SSA follows a very specific formula set by law to calculate each year's COLA, which is based on inflation data. However, the SSA does not use the closely watched Consumer Price Index for All Urban Consumers (CPI-U), which tends to move the market when it comes out each month.
Rather, the SSA uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is a subset of the CPI-U that some refer to as a "blue-collar measure" of inflation. When Congress implemented COLAs in 1973, the CPI-W was the only pricing index available, but today, many are convinced it is not the best benchmark to use for Social Security.
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For the COLA calculation, the SSA takes the CPI-W readings from the third quarter of the year (the months of July, August, and September) and averages them. Then, the SSA compares it to the year-ago average. Any percentage increase becomes the next COLA. While the COLA can be zero, it cannot be negative, meaning benefits never decrease.
What the 2026 COLA means for retirees
The 2026 COLA will be 2.8%, which is slightly higher than the 2.5% COLA in 2025. The COLA actually ended up coming in higher than many expected at the beginning of the year. For example, the nonpartisan Senior Citizens League (SCL) originally projected a 2.1% COLA, which would have been the smallest in five years.
Based on data from Aug. 2025, the average monthly Social Security check of retired workers was roughly $2,008, or $24,100 annually. Based on the new COLA, the average monthly check will rise to $2,065, or $24,774 yearly in 2026. Due to the number of retirees who rely on Social Security as a supplementary or even primary source of income for their daily expenses, retirees should take this information and begin budgeting for 2026.
While a sizable COLA is often welcomed by retirees, it usually ends up being a double-edged sword. Inflation going up means the cost of living is likely to go up as well, and retirees should assume their expenses in 2026 will also rise, potentially even more than the COLA.
There is widespread debate about whether COLAs have been able to keep up with the high cost of living caused by inflation. The SCL regularly conducts a Loss of Buying Power study to determine whether COLAs are helping retirees maintain their purchasing power. In the SCL's 2024 study, it found that Social Security payments were only worth roughly 80 cents on the dollar, relative to 2010, meaning that retirees have seen 20% of their buying power eroded since then.
Looking at the 15 COLAs between 2010 and 2024, the SCL found that COLAs only beat the annual rate of inflation five times. In particular, the COLA really tends to fall behind when it is zero, which happened in the years following the Great Recession in 2010 and 2011.
While it's hard to pinpoint the exact cause of COLAs falling behind, it could come down to a timing issue since the COLA is based on a three-month snapshot of the year. The SCL has also argued the use of CPI-W data is flawed since it fails to fully capture some of the costs retirees tend to be burdened with, such as housing and healthcare.
Ultimately, while the COLA came in higher than expected this year, retirees should keep in mind that costs are still high too, and inflation has remained elevated. They should avoid loosening their budgets excessively in response to the 2026 COLA.
