The Social Security Administration (SSA) announced the Cost of Living Adjustment (COLA) for 2024 in October, and many beneficiaries were left disappointed. With inflation continuing to rise, retirees and Social Security recipients feel that the increase in their payments is not enough to keep up with the cost of essential goods and services.
COLA is designed to help beneficiaries maintain their purchasing power by adjusting Social Security payments based on inflation. However, many experts argue that the current method of calculating COLA does not accurately reflect the spending habits of older Americans.
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How COLA Is Calculated
COLA is determined using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index tracks the price changes of goods and services commonly purchased by working Americans, but it does not fully capture the expenses most relevant to retirees, such as medical care.
Experts advocate for using the Elderly Consumer Price Index (CPI-E) instead. This index gives greater weight to healthcare costs, which tend to rise faster than general inflation and make up a significant portion of retirees’ expenses. However, the SSA continues to rely on CPI-W, leading to COLA increases that some believe are insufficient.
Importance of COLA
For nearly 52 million retired Americans, Social Security is a crucial source of income. The average Social Security check is currently $1,978.77 per month, which helps many retirees cover essential expenses.
Without COLA adjustments, inflation would erode the purchasing power of Social Security benefits over time. For example, if the cost of a typical basket of goods and services increases by 3% in a year and Social Security payments remain the same, seniors would effectively have less money to spend.
Over the past few decades, COLA adjustments have varied significantly. Some years, retirees received little to no increase. In fact, there were no COLA increases in 2010, 2011, and 2016 due to low inflation. The lowest-ever positive adjustment occurred in 2017 at just 0.3%.
COLA Projections for 2026
Following the release of the January inflation report from the Bureau of Labor Statistics (BLS), experts revised their COLA estimates for 2026. The Senior Citizens League (TSCL), a nonpartisan advocacy group for retirees, increased its COLA projection from 2.1% to 2.3%.
A 2.3% increase would mean the average Social Security check would rise by approximately $46 per month in 2026. While this provides some relief, it may still fall short of covering rising costs for many retirees.
Independent Social Security and Medicare policy analyst Mary Johnson, who recently retired from TSCL, remains slightly more conservative in her estimate, predicting a 2.1% COLA increase for 2026.
Inflation’s Impact on COLA
The main reason TSCL adjusted its COLA projection is the recent uptick in inflation. The consumer price index for all urban consumers (CPI-U), a measure similar to CPI-W, rose by 0.5% in January—the largest monthly increase since August 2023. Over the past 12 months, CPI-U has risen by 3%.
Since COLA calculations are based on inflation trends, any continued increase in consumer prices could lead to further adjustments in COLA estimates for 2026. However, unless inflation rises dramatically, experts expect only a modest increase in Social Security benefits next year.
What This Means for Retirees
Retirees relying on Social Security should prepare for a small COLA increase in 2026. While any increase helps, it may not fully cover the rising costs of healthcare, housing, and other essentials.
To manage their finances, retirees should:
- Monitor inflation trends to anticipate changes in expenses.
- Look for senior discounts to stretch their budget.
- Consider alternative income sources such as part-time work or investments.
- Review Medicare plans to ensure they are getting the best coverage for their needs.
Given the uncertainty surrounding future COLA adjustments, financial planning remains essential for retirees to maintain their standard of living.
FAQs
How is COLA calculated?
COLA is based on the Consumer Price Index for Urban Wage Earners (CPI-W).
What is the projected COLA for 2026?
Experts estimate a 2.1% to 2.3% increase in Social Security benefits.
Why do some experts prefer CPI-E over CPI-W?
CPI-E better reflects seniors’ expenses, especially healthcare costs.
Will the COLA increase cover inflation?
The increase helps but may not fully keep up with rising living costs.
How much will benefits increase in 2026?
The average check may rise by around $46 per month.
