Social Security is a critical source of income for millions of retirees in the United States. In 2022, the program helped 22.7 million people rise above the federal poverty line, with 16.5 million of them being adults aged 65 and older. Social Security checks are especially essential for seniors, with 67% relying on it for more than half of their annual income, according to a survey by The Senior Citizens League (TSCL).
Given how vital Social Security is to the financial stability of many retirees, the annual cost-of-living adjustment (COLA) is one of the most anticipated events for beneficiaries. With the early 2026 COLA projections now in, retirees may be facing a mix of good news and bad news. Here’s a breakdown of the situation.
What Is COLA and Why Does It Matter?
The Cost-of-Living Adjustment (COLA) is a mechanism that adjusts Social Security benefits to keep pace with inflation. Inflation leads to higher costs for goods and services that retirees typically purchase, such as food, healthcare, and utilities. Without COLA, retirees would struggle to maintain their standard of living as their Social Security checks would lose value over time.
For example, if the price of a basket of goods that retirees regularly buy increases by 3% from one year to the next, the Social Security benefits should ideally rise by the same percentage to ensure retirees can still afford these goods. This adjustment is made possible through COLA.
How Does COLA Work?
Social Security’s COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks the prices of over 200 goods and services. The CPI-W determines whether inflation has occurred by comparing the average prices from July to September with the previous year. If inflation is present, Social Security benefits will rise accordingly.
Before 1975, there was no set method for adjusting Social Security payouts, with adjustments being made sporadically through special sessions of Congress. But since 1975, COLA has been calculated annually using the CPI-W, ensuring that Social Security benefits keep pace with inflation.
Social Security’s 2026 COLA Projection
The early projection for Social Security’s 2026 COLA suggests a 2.1% increase, according to TSCL. This would be the smallest COLA in five years, following a high of 8.7% in 2023. However, it’s important to note that a 2.1% increase is still in line with the average COLA over the last 15 years, which has been around 2.3%.
This smaller increase comes as inflation is expected to cool down, especially in energy and vehicle prices, which have been driving up costs in recent years. Although it’s still early, a 2.1% COLA would mean retirees would see an average increase of $41 per month in their Social Security checks, bringing the average monthly payout to $2,017.
Other beneficiaries, such as workers with disabilities or survivor beneficiaries, would see their payments rise by $33 and $32, respectively.
The Good News: Cooling Inflation
One of the benefits of the projected 2.1% COLA is that it reflects a period of cooling inflation. After years of rapidly rising prices, especially for energy and vehicles, a lower COLA could help ease financial pressure on retirees. For those on fixed incomes, this could provide some relief, as rising inflation can be particularly difficult to manage when income doesn’t increase to match the higher costs.
Cooling inflation means that while the COLA will be smaller, retirees will be facing more stable prices for the goods and services they rely on. In this sense, the 2026 COLA provides a degree of security, as the cost of living isn’t growing as quickly as it has in the past few years.
The Bad News: A Decline in Purchasing Power
While a 2.1% COLA is better than nothing, it’s not enough to fully offset rising living costs for retirees. According to the Consumer Price Index for All Urban Consumers (CPI-U), housing and medical care costs have increased by 4.6% and 3.4%, respectively, over the last year—far higher than the projected 2.1% COLA.
Seniors, who tend to spend a larger portion of their income on shelter and healthcare, are particularly vulnerable to these higher costs. As a result, even with the COLA increase, many retirees may still experience a decline in purchasing power, meaning that their Social Security checks may not stretch as far as they did in the past.
A study by TSCL found that the buying power of a Social Security dollar has decreased by 20% since 2010. This means that even with a COLA increase, retirees may still struggle to keep up with the rising costs of essential goods and services, making it difficult to maintain their standard of living.
Conclusion
The 2026 COLA projection presents retirees with both positive and negative news. On the one hand, the cooling inflation could offer some relief, and the 2.1% COLA increase will help, even if it’s the smallest in five years. On the other hand, higher costs for housing and healthcare will likely continue to outpace the COLA, leaving retirees with reduced purchasing power.
As retirees continue to rely on Social Security for a significant portion of their income, it’s crucial that future COLA adjustments keep up with the rising costs of living, especially for essentials like healthcare and housing.
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