For most retirees, Social Security provides an indispensable source of income. Even though the average retired-worker benefit check was a modest $1,980.86 in February, this payout has been necessary to help beneficiaries make ends meet.

Since 2002, pollster Gallup has been conducting annual surveys to gauge how reliant retirees are on the income they receive from America’s leading social program. Spanning more than two decades, 80% to 90% of respondents have noted that their Social Security check accounts for a “major” or “minor” income source. In other words, it’s a financial foundation they’d struggle to make do without.

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With an overwhelming majority of the program’s 52 million-plus retired workers relying on their payout to cover their expenses, in some capacity, it should come as little surprise that the annual cost-of-living adjustment (COLA) reveal in October is the year’s most anticipated announcement.

Though we’re still six months from this official unveiling, the newest COLA forecast for 2026 sheds light on the potential promise and peril that awaits retirees.

Image source: Getty Images.

Social Security’s COLA serves a critical purpose for beneficiaries

The mysterious “COLA” you’re always reading about is the tool the Social Security Administration has at its disposal to fight back against a loss of buying power due to inflation.

For example, if a broad basket of goods and services regularly purchased by seniors increases in cost by 2% from one year to the next, Social Security benefits would need to increase by a commensurate amount, otherwise seniors wouldn’t be able to purchase the same amount of goods and services. Social Security’s cost-of-living adjustment is the “raise” passed along most years that accounts for price changes.

Between the mailing of the first Social Security check in January 1940 and 1974, COLAs were administered by special sessions of Congress. Since there wasn’t a formula in place to measure inflationary pressures on an annual basis, only 11 COLAs were passed along in 35 years, none during the entirety of the 1940s.

Beginning 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 COLAs. The CPI-W comprises more than 200 spending categories, each with its own respective weighting. This allows the CPI-W to be represented as a single figure each month, which makes for quick and easy month-to-month and year-over-year comparisons to determine whether prices are climbing (inflation) or declining (deflation).

Although the CPI-W is reported monthly, only the third-quarter readings (July through September) are used in the COLA calculation. If the average third-quarter CPI-W reading is higher in 2025 than in the comparable period of the previous year, beneficiaries will receive a raise in 2026.

A historic expansion of the U.S. money supply sent Social Security’s COLAs soaring in recent years. US Inflation Rate data by YCharts.

The latest 2026 cost-of-living adjustment update offers glimmers of hope for retirees

Throughout the 2010s, COLAs were nothing to write home about. During the respective third quarters of 2009, 2010, and 2015, deflation occurred, resulting in no COLA being passed along in 2010, 2011, and 2016. The program’s smallest positive COLA on record (0.3%) was also administered in 2017.

But things have changed in a pretty big way over the last four years. A never-before-seen expansion of the U.S. money supply during the COVID-19 pandemic sent the prevailing rate of inflation soaring. This produced COLAs of 5.9% in 2022, 8.7% in 2023 (the largest percentage increase in 41 years), 3.2% in 2024, and 2.5% in 2025. For some added context, the average COLA since 2010 has been 2.3%. Suffice it to say, beneficiaries are hoping for a fifth-year encore — and it’s possible they’ll get it.

Following the release of the March inflation report from the Bureau of Labor Statistics (BLS), nonpartisan senior advocacy group The Senior Citizens League (TSCL) modestly upped its 2026 COLA forecast to 2.3% from 2.2% in the prior month. This would effectively be on par with the average cost-of-living adjustment since 2010 and handily lift the average monthly retired-worker benefit above $2,000 next year.

Meanwhile, independent Social Security and Medicare policy analyst Mary Johnson, who somewhat recently retired from TSCL, pegged her 2026 COLA forecast at 2.2%. This is also up just a tad from a prior forecast of 2.1% following the January inflation report.

What’s worth pointing out is that TSCL and Johnson are both leaving the door open for their estimates to adjust once President Donald Trump’s tariffs begin affecting the cost of goods and services. With Trump instituting a sweeping 10% global tariff on Liberation Day (April 2nd), the March inflation data from the BLS is the last report that’ll (likely) be unaffected by major tariff policy.

In other words, Social Security’s 2026 COLA appears to be trending modestly higher, and it might be lifted even further by the implementation of tariffs. Translation: Social Security raises may be larger than initially forecast next year.

Image source: Getty Images.

One step forward, two steps back has been a common theme for retirees

While the newest 2026 cost-of-living adjustment forecast offers glimmers of hope, the wider-lens look isn’t nearly as rosy.

The goal for Social Security’s COLA is to help seniors keep pace with the prevailing inflation rate and ensure no loss of buying power. Unfortunately, the CPI-W is inherently flawed, which has led to a fairly consistent decline in the purchasing power of a Social Security dollar since 2000.

The problem with the CPI-W can be seen in its full name. Specifically, its focus is on the spending habits of “urban wage earners and clerical workers.” The vast majority of Social Security beneficiaries are seniors who aren’t in the labor force (i.e., not urban wage earners and clerical workers).

Retirees spend their money differently from working-age Americans. Whereas the latter spend a higher percentage of their monthly income on things like education, apparel, and transportation, retirees budget more for shelter expenses and medical care services than working-age Americans. The CPI-W isn’t factoring in the added importance of shelter and medical care spending for retirees, thereby leading to COLAs that consistently come up short of the true inflation they’re contending with.

Based on an analysis from TSCL that was released in July 2024, the buying power of a Social Security dollar has declined by 20% since 2010 — and based on the March inflation data, there’s little hope of this improving in 2026.

Despite 2026 COLA forecasts inching higher, Johnson’s 2.2% estimate and TSCL’s 2.3% projection fall short of the 3% trailing-12-month (TTM) inflation rate for medical care services, per the Consumer Price Index for All Urban Consumers (CPI-U), which is a similar inflationary measure to the CPI-W, and the 4% TTM inflation rate for shelter.

As long as the most important costs to retirees are climbing at a faster pace than the COLAs beneficiaries are receiving, there’s a high probability of Social Security income losing purchasing power.

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