Many retirees rely heavily on Social Security to make ends meet. According to a recent annual Gallup poll, 62% of retirees said their monthly payments are a major source of income. That's the highest response ever recorded in the 24 years the pollster has surveyed seniors about their budgets.
That makes the annual Social Security cost-of-living adjustment (COLA) extremely important to the 62.2 million Americans receiving retirement and survivor benefits each month. The COLA is designed to make sure retirees' monthly payments keep pace with the rising prices of goods and services like groceries, utilities, and medical bills. But many seniors report feeling the COLA hasn't matched the rapid inflation rate of the last few years.
For what it's worth, Social Security beneficiaries will notice a 2.8% increase in their benefits next month when the 2026 COLA goes into effect. Here's how much more the average retiree will receive to help them cope with higher prices.
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How the government determines the Social Security COLA
Before 1975, the only way Social Security beneficiaries received a raise was if Congress passed a new act to do so. But starting that year, Congress implemented a formulaic approach to the annual adjustment based on a standard measure of inflation. The measure of choice is called the Consumer Price Index for Urban Wage Earners and Clerical Workers, commonly referred to as the CPI-W.
The CPI-W measures the cost of a basket of goods and services representing the typical spending of a working-age city dweller. The Bureau of Labor Statistics surveys hundreds of retailers and households across the country each month to determine the average increase in prices for each item. The resulting increase provides a fairly accurate representation of inflation.
The Social Security COLA is based on the average year-over-year inflation during the third quarter. The result becomes the COLA for the following year.
Some argue that the CPI-W is the wrong index to track, since Social Security beneficiaries typically have different expenses than working-age people living near a city center. Using a different inflation measure, such as CPI-E, which weights common spending categories of seniors more heavily, might be more accurate. However, changing the system is a complex and challenging process. The result of using the CPI-W for the third quarter of 2025 is a 2.8% COLA for 2026.
Here's how much the average retirement benefit will increase next month
Each retiree's benefits will increase by a different amount in January, based on the amount they were collecting in 2025. The average retired worker's benefit in November was $2,013. Applying the 2.8% COLA to that amount results in an increase in the average monthly payment of about $56, bringing the total monthly payment to $2,069.
Many retirees may find that number disappointing. An extra $56 each month might not offset the rising costs of some of retirees' largest expenses in 2026. Core living expenses for seniors, like housing, utilities, and medical services, are climbing much faster than 2.8%.
Making matters worse is the rise in Medicare Part B insurance premiums. Beneficiaries age 65 and older who are also enrolled in Medicare have those premiums automatically deducted from their benfits checks. For 2026, the premium will increase $17.90 per month to $202.90 for most enrollees. That means more than 30% of the average Social Security beneficiary's COLA increase will go toward higher premiums for medical insurance.
If you have a lower-than-average Social Security benefit, you may be protected by the hold harmless provision. You're protected against the rise in Medicare premiums from decreasing the total amount you receive from Social Security each month. But that only applies if you're already enrolled in Medicare this year.
It's important to understand how the government calculates the annual Social Security raise and how it applies to your specific situation. Be sure to read any notices from the Social Security Administration about changes to your monthly payments and how deductions like Medicare premiums and increases like the annual COLA affect how much you will receive each month.
