For most retirees, Social Security is more than just a monthly check. It represents the foundation of their financial well-being as they age.

Beginning in 2002, national pollster Gallup began surveying retirees annually to determine how reliant they were on the Social Security income they received. Spanning 23 surveys, between 80% and 90% of respondents noted that their Social Security check was needed, in some capacity, to cover their expenses.

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Knowing how important Social Security income is to seniors, it should come as no surprise that the cost-of-living adjustment (COLA) reveal is the most anticipated event each year for beneficiaries. Although we’re still many months away from the official 2026 COLA unveiling, an initial projection points to history being made… and beneficiaries still ending up disappointed.

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What’s the purpose of Social Security’s COLA?

The cost-of-living adjustment is, effectively, the mechanism used by the Social Security Administration (SSA) to fight back against a loss of buying power.

For instance, let’s hypothetically assume the average price for a large basket of goods and services regularly purchased by seniors rose by 2% from one year to the next. If benefits remained static, seniors wouldn’t be able to purchase as much (i.e., their Social Security dollars would have lost buying power). Social Security’s COLA is the near-annual adjustment to payouts that accounts for inflation — the measurable increase in the price for goods and services.

Prior to 1975, there was no formula for assigning COLAs. Rather, arbitrary benefit increases were passed along by special sessions of Congress. From 1940 through 1974, only 11 COLAs were administered, including none during the entirety of the 1940s.

Starting in 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) became the program’s inflationary tool that allowed for annual adjustments, if needed. The CPI-W measures price changes in more than 200 different categories, each of which have their own respective percentage weightings. These weightings are what allow the CPI-W to be expressed as a single figure each month, which makes for seamless month-to-month and year-over-year comparisons to determine whether prices are, collectively, increasing (inflation) or declining (deflation).

Though the CPI-W is reported monthly by the U.S. Bureau of Labor Statistics (BLS), only readings from July through September are used in the COLA calculation. If the average CPI-W reading from the third quarter (July to September) of the current year is higher than the average CPI-W reading from the comparable prior-year period, inflation has occurred and beneficiaries are due a raise.

A sizable uptick in the prevailing rate of inflation sent COLAs soaring in recent years. US Inflation Rate data by YCharts.

Social Security’s 2026 cost-of-living adjustment is on pace to make history

During the 2010s, COLAs were mostly anemic. Deflation led to no COLA being passed along in 2010, 2011, and 2016, while 2017 featured the smallest positive COLA on record (0.3%).

But over the last four years, an uptick in the prevailing rate of inflation sent Social Security checks climbing at an above-average pace. The end result was a 5.9% COLA in 2022, an 8.7% COLA in 2023 (the highest on a percentage basis in 41 years), a 3.2% COLA in 2024, and a 2.5% COLA in 2025. For context, the average COLA since 2010 is roughly 2.3%.

Although we’re still five months away from reaching the first month that actually matters in the COLA calculation (July), monthly CPI-W reports are providing clues as to what to expect for the 2026 cost-of-living adjustment.

On Jan. 15, shortly after the BLS released the December 2024 inflation report, nonpartisan senior advocacy group The Senior Citizens League (TSCL) unveiled its early prediction for the 2026 COLA. Due to deflation in energy commodities and new/used vehicle pricing, and a general softening in the prevailing rate of inflation, TSCL estimates the 2026 COLA will come in at 2.1%.

On one hand, this would represent the smallest percentage increase in five years and fall short of the average cost-of-living adjustment over the prior 16 years. However, it would also make history.

When the curtain opened in 2025, the average retired-worker beneficiary was taking home $1,975.34 per month from Social Security. If the 2026 COLA is anywhere in the neighborhood of 2.1%, it would send the average retired-worker benefit check to north of $2,000 for the first time.

Keep in mind that Social Security’s COLA is universally applied to all 68 million-plus beneficiaries. This means workers with disabilities and survivor beneficiaries would see their benefit rise, too. The average monthly benefit for workers with disabilities would top $1,600 for the first time if the 2026 COLA is 2.1%, while the average survivor benefit would surpass $1,575 per month.

Image source: Getty Images.

The 2026 COLA is likely to miss the mark, yet again

Following a decade of subpar COLAs, the prospect of five consecutive years of at least a 2.1% nominal increase to Social Security checks would be a positive. Additionally, retired workers receiving an average check of more than $2,000 per month is a psychological lift.

But if TSCL’s 2026 COLA prediction proves accurate, it would continue the theme that’s existed since this century began of seniors getting the short end of the stick.

Although TSCL’s projection of a 2.1% COLA is a tad below the 2.3% average raise since 2010, this nominal difference isn’t a big issue. The real problem for retirees is that their Social Security income is steadily losing purchasing power over time.

Retirees and working-age Americans spend their money differently. In particular, seniors spend a disproportionately higher percentage of their monthly budget on shelter and medical care expenses than the typical worker.

In December, shelter expenses rose by 4.6% on a trailing-12-month (TTM) basis and medical care services jumped by 3.4% (TTM), per the Consumer Price Index for All Urban Consumers (CPI-U), which is a similar inflationary measure to the CPI-W. These important costs to retirees have been rising at a much faster pace than cost-of-living adjustments most years, which is resulting in a steady loss of buying power.

TSCL has released two analyses comparing the buying power of a Social Security dollar to the cost of goods and services regularly purchased by seniors. In its May 2023-released study, it noted a 36% decline in purchasing power from January 2000 through February 2023. Meanwhile, its July 2024-released analysis points to a 20% drop-off in buying power for Social Security income since 2010.

Unless COLAs are consistently coming in at or above the prevailing rate of inflation for shelter and/or medical care services, retirees are going to be left disappointed as the buying power of their Social Security income whittles away.

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