The Social Security Administration is expected to announce a higher-than-usual cost-of-living adjustment (COLA) for 2026. However, for many retirees, this adjustment might not be as beneficial as it seems. While an increase in benefits may appear positive, the way inflation is measured and the unique spending habits of seniors could leave many struggling to keep up with rising costs.
Every year, Social Security benefits are adjusted based on inflation, but the method used to calculate this adjustment may not reflect the actual economic pressures faced by retirees. While an above-average COLA could offer more funds on paper, it does little to address the real-world expenses that senior households contend with—particularly healthcare, housing, and transportation.
The Flaws in the COLA Calculation Formula
Social Security’s annual COLA is determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a metric that tracks inflation based on the spending habits of working-age adults in urban areas. According to the Bureau of Labor Statistics, the CPI-W surveys prices across more than 200 goods and services, primarily reflecting the costs that younger, employed individuals face in cities.
However, for retirees, this measure doesn’t match their spending needs. Seniors typically allocate a larger portion of their budgets to healthcare and housing, two sectors where inflation has been particularly high. As a result, the COLA often fails to accurately reflect the real cost increases that affect older adults. According to The Senior Citizens League, over time, this discrepancy has eroded the purchasing power of Social Security benefits for retirees, with some seniors losing as much as 20% of their buying power since 2010.
Why a Larger COLA May Not Solve Retirees’ Challenges
Although a higher COLA may sound like good news, it does not necessarily alleviate the financial pressure on seniors. The inflation rate for essential goods, such as medical care, housing, and transportation, has been rising faster than the overall CPI-W. In recent data, healthcare costs increased by 4.3%, housing by 3.7%, and transportation by 3.5%. These expenses make up a significant portion of seniors’ budgets, and the inflation adjustments for these categories far exceed the typical COLA increase.
Furthermore, because many retirees depend heavily on their Social Security benefits as their primary source of income, increases in those benefits don’t always keep up with the high costs in the areas they need most. Mary Johnson, an independent Social Security analyst, has pointed out that a larger COLA is unlikely to keep pace with the rising costs of healthcare and housing, leaving retirees vulnerable to the continued erosion of their purchasing power.
