For a majority of the more than 51 million retired workers currently receiving a Social Security check, this income is vital to their financial well-being.

Since 2002, national pollster Gallup has conducted annual surveys to determine how reliant retirees are on the income they receive from America’s top retirement program. These polls have shown that 80% to 90% of retirees, including 88% in April 2024, count on their Social Security check, to some degree, to make ends meet.

With this payout laying a financial foundation for those who can no longer provide for themselves, there are few announcements more anticipated than the annual cost-of-living adjustment (COLA) reveal during the second week of October.

While the recently unveiled 2025 COLA, on paper, gave beneficiaries something to smile about, the 2026 COLA may be on track to make dubious history.

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Social Security’s COLA is vital for retirees

The purpose of Social Security’s cost-of-living adjustment is to help beneficiaries fight back against the effects of inflation.

As a hypothetical example, if the average price for a basket of goods and services purchased by seniors rises by 2%, Social Security benefits would, ideally, need to climb by a matching rate to ensure no loss of buying power. Social Security’s COLA is effectively the “raise” passed along most years that accounts for the pricing pressures faced by beneficiaries.

The history of the program’s COLA is a tale of two halves. Between 1940 and 1975, adjustments were made on an arbitrary basis by special sessions of Congress. During the 1940s, no COLA was passed along, while a record 77% COLA was administered in 1950.

Beginning in 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) became Social Security’s inflationary measure, which allowed for annual COLAs. The CPI-W has more than 200 different weighted spending categories, which is what allows this inflationary index to be reported as a single figure at the end of each month.

When calculating the cost-of-living adjustment, the Social Security Administration (SSA) uses only the trailing 12-month readings ending in July, August, and September (the third quarter). If the average Q3 CPI-W reading is higher than the comparable period of the previous year, aggregate prices have risen and beneficiaries are due a raise.

Social Security’s COLA represents the year-over-year percentage difference in average Q3 CPI-W readings, rounded to the nearest tenth of a percent.

A big uptick in the prevailing rate of inflation produced four consecutive above-average COLAs. However, the inflation rate has begun rapidly decelerating. US Inflation Rate data by YCharts.

Social Security’s 2025 cost-of-living adjustment came in above average, but is far from perfect

Coming into this year, beneficiaries were hoping for a history-making moment. Following COLAs of 5.9% in 2022, 8.7% in 2023, and 3.2% in 2024, a raise of at least 2.6% would have marked the first time since 1997 that benefits jumped by this amount for four consecutive years. But while history wasn’t, ultimately, achieved, payouts are increasing by an above-average percentage.

On Oct. 10, the SSA revealed a 2.5% COLA for 2025, which compares favorably to the 2.3% average raise over the previous 15 years.

For retired-worker beneficiaries, who accounted for 81% of the benefits paid out by the SSA in August, the average Social Security check is set to climb by $49 per month to $1,976 in 2025.

Meanwhile, the average monthly payout for workers with disabilities and for survivor beneficiaries is expected to rise by about $38 per month to $1,580 and $1,551, respectively, come January.

While another above-average increase to benefits probably sounds great on paper, there’s a very high probability of retirees getting the short end of the stick next year. Specifically, the expenses that matter most to seniors, such as shelter and medical care services, are sporting considerably higher trailing 12-month price increases than the 2.5% COLA beneficiaries will be receiving. This suggests that seniors will continue to lose buying power in the upcoming year.

To add fuel to the fire, Medicare’s Part B premium — this is the segment of Medicare responsible for outpatient services — is expected to rise by 5.9% to $185 per month in 2025. Most Medicare enrollees have their Part B premiums automatically deducted from their monthly Social Security checks. An estimated $10.30-per-month hike in monthly Part B premiums will partially or fully offset the effect of next year’s COLA for most retirees.

Image source: Getty Images.

The 2026 COLA could make history (and not in a good way)

Although we’re still a good six months away from beginning to whittle down the possibilities for Social Security’s cost-of-living adjustment in 2026, some signs suggest history will be made — but not the type of history that beneficiaries will look forward to.

In the half-century that the CPI-W has been the program’s inflationary tether, there have only been three years where prices fell on a year-over-year basis (known as deflation). On the bright side, if deflation does occur from one year to the next, Social Security benefits do not decline. However, they also don’t rise if the aggregate price of goods and services falls, which resulted in no COLA being passed along in 2010, 2011, and 2016.

While a lot can happen with various price categories and the U.S. economy over the next 11 months, a viable path does exist for America’s top retirement program to endure its fourth 0% COLA in 2026.

Recently, the trailing 12-month (TTM) prevailing inflation rate has been rapidly decelerating. This is a reflection of the Federal Reserve hiking interest rates at the fastest pace in four decades, and perhaps leaving rates above historic norms for too long a period.

As of the September inflation report from the Bureau of Labor Statistics, the TTM price changes for energy expenses and new and used vehicles were declining on a year-over-year basis. If stubbornly high shelter expenses were to retrace — shelter is the highest-weighted component in the CPI-W — it wouldn’t be a reach for the 2026 COLA to come in at 0%.

There are also a number of historically accurate predictive indicators that suggest the U.S. economy could fall into a recession. The Federal Reserve Bank of New York’s recession probability tool, which gauges the likelihood of a recession taking shape over the next 12 months based on the spread (difference in yield) between the 10-year Treasury bond and three-month Treasury bill, is currently forecasting a 57% chance of an economic downturn by September 2025.

Likewise, a historic drop-off in U.S. M2 money supply in 2023 foreshadows weakness to come in discretionary spending. It’s not uncommon for the aggregate price of goods and services to decline during recessions, which would result in no COLA if it occurred on a year-over-year basis during Q3.

To reiterate, a lot can happen over the next 11 months. But based on the current trajectory of price changes, coupled with historically accurate economic forecasting tools, Social Security looks as if it could make dubious history and deliver only the fourth 0% COLA in a half-century.

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