Arguably the biggest change to the Social Security program each year is the annual cost-of-living adjustment (COLA). The COLA can raise benefits and give retirees more money to spend, making it an important factor in their budgets.
The purpose of the COLA is to maintain retirees’ purchasing power in the face of inflation, which has had broad implications for benefits, especially over the past two decades. Now, COLA predictions for 2026 are rising. Here’s why that’s not a good thing.
The data went down, and now it’s moving up
As I mentioned above, Social Security COLAs are calculated based on inflation data. While the market focuses heavily on the the Consumer Price Index for All Urban Consumers (CPI-U), which measures price changes across a wide basket of consumer goods and services, the Social Security Administration (SSA) calculates its COLA based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W is a subset of the CPI-U that focuses on goods and services more heavily used by blue-collar workers.
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During the third quarter of each year (including the months of July, August, and September), the SSA looks at the year-over-year percentage change in the average CPI-W during the third quarter. Any increase becomes the following year’s COLA. Here are the year-over-year changes in the CPI-W for each month year to date:
| Month | CPI-W Annual Change |
|---|---|
| January | 3.0% |
| February | 2.7% |
| March | 2.2% |
| April | 2.1% |
| May | 2.2% |
| June | 2.6% |
| July | 2.5% |
Source: Social Security Administration
As you can see above, inflation had been coming down nicely until April, before it began to reaccelerate. It’s possible that President Donald Trump’s tariffs contributed to the increase, although the economy has been difficult to understand in recent years due to everything it’s been through in such a short amount of time.
The non-partisan Senior Citizens League (SCL) uses the CPI-W to make their own COLA predictions, and in recent months, those predictions have been rising. In May, the SCL predicted a 2.5% 2026 COLA. In July, the organization hiked their prediction to 2.7%. At the beginning of this year, the SCL had only expected a 2.1% COLA.
Higher COLAs bring bad news, too
Don’t get me wrong, higher COLAs are good in the sense that they give more money to retirees and potentially expand their budgets. The problem, however, is that COLAs move higher because inflation moves higher, which raises the cost of living on everything from housing to transportation to medical services. And once inflation goes up, prices don’t typically come down. When people say inflation is slowing, prices are still going up but at a slower pace than before. There has been extremely intense inflation since the COVID-19 pandemic, and everyone is feeling the pressure.
The SCL conducts an annual study on the purchasing power of Social Security benefits, and it discovered that COLAs are not keeping pace with inflation. In fact, in its 2024 study, the SCL found that over the past 15 years, benefits are only worth about $0.80 on the dollar, meaning retirees have lost 20% of their purchasing power since 2010.
The SCL’s study found that over time, COLAs have become less likely to beat inflation, which has a compounding effect. Over the past 15 years, the SCL’s data showed that COLAs have failed to beat the annual rate of inflation on eight different occasions, with particularly bad misses in 2010 (-2.7%), 2011 (-1.5%), 2017 (-1.8%), and 2022 (-1.1%).
Part of the issue could come down to timing. COLAs are calculated based on the third quarter of the year, so if inflation heats up in other quarters, that price data does not get factored into benefits. Another issue could be the CPI-W itself, which the SCL believes does not accurately reflect the most common costs of retirees. Ultimately, whenever inflation rises, there is going to be chance that COLAs will not keep pace.
