Anticipated Social Security Cost-of-Living Adjustment (COLA) in 2026 Offers Unfavorable Outcomes for Senior Citizens Retiring
In a recent survey conducted by The Senior Citizens League (TSCL), 94% of respondents expressed dissatisfaction with the 2025 COLA of 2.5%, believing it to be too low. This sentiment is shared by many experts who have long criticised the way Social Security COLAs are calculated, specifically the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) used.
The Social Security Administration (SSA), responsible for the calculation of the CPI-W, is facing concerns regarding the reliability of the inflation metric due to changes at the U.S. Bureau of Labor Statistics (BLS). Some economists outside the government are apprehensive that these changes could affect the quality of BLS inflation numbers, and in turn, the COLA calculated by the SSA.
The TSCL has estimated the 2026 Social Security COLA to be 2.7%. However, given the potential impact of higher tariffs put into place by the Trump administration on consumer prices, particularly in the fourth quarter, the actual increase might not be enough to offset the corrosive effect of inflation on Social Security benefits.
The COLA increase, if it materialises, might come too late to significantly help retirees with their financial situation. Furthermore, the gap between the amount of the Social Security benefit increase and inflation experienced by seniors could get worse. This is a concern for many, as any benefit increase is preferable to none at all, as retirees can at least use it to help offset higher prices they are encountering, assuming inflation does not significantly decrease in the near future.
Reducing reliance on Social Security for retirees isn't straightforward and may involve withdrawing more from other retirement accounts or working part-time. Saving more in IRA, 401(k) plans, and other tax-advantaged retirement accounts can help minimise the impact of potential issues with the Social Security COLA for those who haven't retired yet.
In the 2025 survey, 80% of seniors thought that inflation last year was 3% or more. This highlights the ongoing struggle for retirees to keep pace with rising costs. The 2026 COLA might not arrive in time to counterbalance Social Security recipients' increased costs, adding to the worries of many seniors.
The concerns surrounding the 2026 Social Security COLA underscore the need for a comprehensive review of the way COLAs are calculated to ensure they accurately reflect the real-world inflation experienced by seniors.
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