For most retirees, Social Security represents an indispensable source of income. This is a program that pulled 22.7 million people above the federal poverty line in 2022, 16.5 million of which were adults aged 65 and above.

What’s more, surveys have shown that Social Security checks are necessary for seniors to make ends meet. A poll from nonpartisan senior advocacy group The Senior Citizens League (TSCL) found that 67% of seniors rely on Social Security for more than half of their annual income.

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Considering how important Social Security is to the financial well-being of our nation’s aging workforce, no announcement looms larger for beneficiaries than the annual cost-of-living adjustment (COLA). The early projection for Social Security’s 2026 COLA is in, and it’s looking like another year of a good news/bad news scenario for retirees.

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What is Social Security’s COLA and why does it matter?

Social Security’s cost-of-living adjustment is the mechanism that allows the Social Security Administration (SSA) to adjust benefits on a near-annual basis to account for the effects of inflation.

For instance, let’s hypothetically say the collective price for a large basket of goods and services regularly purchased by retirees increases in price by 3% from one year to the next. Ideally, Social Security benefits will need to rise by a commensurate amount to ensure that retirees can continue to buy these same goods and services. COLA is the tool the SSA uses to adjust payouts so beneficiaries don’t lose their purchasing power.

From 1940 through 1974, there was no rhyme or reason to adjusting payouts. They were passed along by special sessions of Congress, with only 11 COLAs enacted over 35 years.

Beginning in 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) became the inflationary measure used to calculate COLA on an annual basis for America’s leading retirement program. The CPI-W has north of 200 different price categories, all of which have their own respective weightings. These percentage weightings are what allow the CPI-W to be whittled down to a single figure each month to determine whether prices are, collectively, rising (inflation) or falling (deflation).

Although the CPI-W is reported monthly, only the readings from July through September (the third quarter) factor into the COLA calculation. If the average CPI-W reading from the third quarter of the current year is higher than the comparable period of the prior year, inflation has occurred and Social Security checks are poised to climb.

An uptick in the prevailing rate of inflation led to four above-average COLAs from 2022 through 2025. US Inflation Rate data by YCharts.

Social Security’s 2026 COLA is pacing a five-year low

Social Security’s 2026 cost-of-living adjustment has some big shoes to fill. During the 2010s, we witnessed three years where deflation occurred and no COLA was passed along (2010, 2011, and 2016), as well as the smallest positive COLA in history (0.3% in 2017). But over the last four years, COLAs came in at 5.9% in 2022, a four-decade high of 8.7% in 2023, 3.2% in 2024, and 2.5% in 2025. These increases are all above the average raise over the last 15 years.

Following the release of the December inflation report from the U.S. Bureau of Labor Statistics two weeks ago, TSCL released its early projections for the 2026 COLA.

Based on a forecast that calls for “cooling inflation,” TSCL is predicting the 2026 COLA will come in at 2.1%. This would mark the smallest percentage increase in five years, though it wouldn’t be too far below the average payout bump of 2.3% since 2010.

A year-over-year decline in energy-related costs, coupled with lower prices for new and used vehicles, should keep the prevailing rate of inflation at bay.

Although there’s a long way to go before reaching the months that actually count toward the COLA calculation, it’s worthwhile to know what a 2.1% COLA would actually mean in dollar terms. For retired workers, who account for more than 75% of Social Security’s 68 million-plus beneficiaries, a 2.1% COLA would increase their average check by more than $41 per month to approximately $2,017.

Meanwhile, workers with disabilities and survivor beneficiaries would see their monthly payouts rise by $33 and $32, respectively, with a 2.1% COLA in place.

Image source: Getty Images.

A good news/bad news scenario awaits retirees in 2026

While a lot can change in the months to come, Social Security’s 2026 COLA offers both good and bad news for retirees.

On one hand, the prospect of “cooling inflation” isn’t a bad thing. Rapidly rising costs can be scary for retirees — especially those whose income may be predominantly fixed on a monthly basis. Even though the projected COLA of 2.1% would be the lowest since the early stages of the COVID-19 pandemic, it would be accompanied by the tamest collective increase in prices for goods and services in the same amount of time.

On the other hand, a 2.1% cost-of-living adjustment in 2026 would almost certainly lead to a loss of purchasing power for retirees.

Compared to the average working American, seniors spend a higher percentage of their budget on shelter expenses and medical care costs. Per the Consumer Price Index for All Urban Consumers (CPI-U), which is a similar measure of inflation to the CPI-W, shelter and medical care services have respectively risen in price by 4.6% and 3.4% over the trailing 12 months, through December 2024. That’s notably higher than a forecast 2.1% raise.

Based on a study released last summer by TSCL, the buying power of a Social Security dollar has declined by 20% since 2010. As long as shelter and medical care services inflation remains substantially higher than the COLA being passed along to beneficiaries, it’ll be bad news for the pocketbooks of retirees.

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