Millions of retired workers depend on Social Security benefits to make ends meet, and they count on annual cost-of-living adjustments (COLAs) to keep their payments aligned with inflation. Benefits lose purchasing power if those COLAs are too small, in which case Social Security recipients would effectively get less money.

The Senior Citizens League, a nonprofit and nonpartisan senior advocacy group, recently raised its 2026 COLA forecast to 2.3%. That upward revision from the previous estimate of 2.2% was somewhat surprising because the March inflation reading was the lowest since September.

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That’s good news at first glance. But trends in the underlying inflation data point to a problem for retirees: Social Security benefits will likely lose purchasing power next year. Here’s why.

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The problem with Social Security’s cost-of-living adjustment (COLAs)

Social Security recipients receive annual cost-of-living adjustments (COLAs) designed to keep benefits in line with inflation. The COLAs are determined based on a subset of the Consumer Price Index known as the CPI-W.

The math is simple: The average CPI-W reading in the third quarter of the current year (July to September) is divided by the average CPI-W reading from the third quarter of the previous year. The percent increase (if any) becomes the COLA in the next year.

But there’s a problem: CPI-W inflation is based on the spending habits of working adults. But they tend to be younger than retirees on Social Security, and young people spend money differently than seniors. As a result, CPI-W inflation is not an ideal measure of pricing pressures for Social Security beneficiaries.

For instance, retired workers tend to spend more than working-age adults on housing and medical care, and they tend to spend less on transportation. Consequently, from the point of view of retirees, the CPI-W puts too little emphasis on housing and medical care, and too much emphasis on transportation because the index is weighted based on the habits of hourly workers.

Why Social Security benefits are likely to lose buying power in 2026

CPI-W inflation decelerated to 2.2% in March 2025, the lowest reading since September 2024. But housing and medical care prices increased 3.7% and 2.7%, respectively, while transportation prices dropped 1%. In other words, price increases trended above average in underweight spending categories and below average in overweight categories.

The same pattern has persisted throughout the first three months of 2025. Listed here are the average year-to-date changes in the overall CPI-W and select spending categories:

• CPI-W (all categories): 2.6%
• Housing: 3.7%
• Medical care: 2.8%
• Transportation: 1.4%

As shown above, CPI-W inflation averaged 2.6% in the first three months of 2025. But housing and medical care expenses increased more quickly, while transportation costs increased more slowly. Consequently, CPI-W readings are probably underestimating inflation from the perspective of retired workers on Social Security

That’s because prices in underweight spending categories are increasing more quickly than the overall index, while prices in the overweight transportation category are increasing less quickly than the overall index. As a result, Social Security benefits are presently on pace to lose purchasing power next year

We can double check that assumption by referring to the CPI-E, a subset of the Consumer Price Index based on the spending habits of individuals aged 62 and older. CPI-E inflation was 2.9% during the first three months of 2025, topping CPI-W inflation by 0.3 percentage points. That supports the idea that CPI-W readings are underestimating inflation for retired workers, which means the 2026 COLA is likely to be too small.

Having said that, the Social Security Administration cannot calculate the 2026 COLA until CPI-W data for the third quarter is available, which will happen in October 2025. A lot could change during the interim period. But retirees can get ahead of the problem by being a little more judicious with their spending today.

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