Last October, the Social Security Administration announced that benefits would be going up by 2.8% in 2026. The news was a mixed bag.
On the one hand, a 2.8% cost-of-living adjustment, or COLA, is larger than the 2.5% raise seniors got in 2025. On the other hand, that 2.8% COLA could easily get eaten up by rising prices fueled by tariffs in the next 12 months.
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But tariffs aside, this year's Social Security COLA is likely to be insufficient for seniors for another reason. And it's a reason retirees have been grappling with for a long time.
A flawed system
The reason Social Security COLAs tend to fail seniors from year to year is simple. They're based on an index that does not accurately reflect the costs Social Security recipients tend to face.
Social Security COLAs are based on third-quarter changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. But a close read of the name of that index explains why it's not a good measure for calculating Social Security raises.
The expenses that Social Security recipients face tend to be different from the expenses faced by working people. Social Security beneficiaries, for example, tend to spend a large portion of their income on healthcare, which is not heavily weighted in the CPI-W.
But healthcare inflation has been outpacing broad inflation in recent years. Since that's not accounted for well in COLA calculations, it puts many seniors in a position where their Social Security benefits don't hold up well from year to year.
Advocates have proposed using a senior-specific index to calculate Social Security COLAs. But lawmakers have yet to embrace that change, despite the fact that it could do retirees a world of good.
Have realistic expectations
If you're on Social Security and are hoping your 2.8% raise goes far this year, you may be in for an unpleasant surprise. Or you may not be surprised at all when you realize you're losing buying power yet again.
The solution? Try not to be too reliant on Social Security.
If you didn't manage to save very much for retirement, try boosting your senior income by working part-time. You can also try shedding expenses to the extent that it's feasible. That could mean downsizing into a smaller home, for example, to reduce your costs, or giving up a car if you live in a walkable area and are very mobile.
Relocating may be another option to consider if you live in an area that's more expensive than the national average. Just pay attention to factors like state and local taxes before packing up your life and moving elsewhere.
Even though this year's Social Security COLA is more generous than the raise seniors got last year, it may not do your finances all that much good. Be proactive in improving your situation so you don't end up struggling needlessly.
