For millions of retirees, Social Security isn’t just a monthly check—it’s a lifeline. It’s the bedrock of their financial stability, ensuring they can cover essential expenses as they age.
For over two decades, national pollster Gallup has consistently found that between 80% and 90% of retirees rely on their Social Security benefits to make ends meet. This reliance makes the annual cost-of-living adjustment (COLA) one of the most anticipated announcements for beneficiaries. While the 2026 COLA is projected to make history, it may still leave retirees feeling shortchanged.
What Is Social Security’s COLA, and Why Does It Matter?
The cost-of-living adjustment is the Social Security Administration’s (SSA) tool to combat inflation and protect the purchasing power of beneficiaries. Without COLAs, retirees would see their ability to afford goods and services erode as prices rise.
For example, if inflation increases the cost of a basket of goods by 2%, a static Social Security check would buy less than it did the year before. The COLA ensures benefits keep pace with inflation, at least in theory.
Before 1975, COLAs were not automatic. Congress had to pass special legislation to increase benefits, resulting in only 11 adjustments between 1940 and 1974. Since 1975, the SSA has used the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to calculate COLAs.
This index tracks price changes across more than 200 categories, weighted by their importance to consumers. The CPI-W readings from July through September are compared to the previous year’s third-quarter average to determine the COLA for the following year.
The 2026 COLA: A Historic First, But Not Enough?
The 2026 COLA is shaping up to be a landmark moment for Social Security beneficiaries. According to an early projection by The Senior Citizens League (TSCL), a nonpartisan senior advocacy group, the 2026 COLA is expected to be 2.1%. While this would mark the smallest increase in five years, it would also push the average retired-worker benefit above $2,000 per month for the first time in history.
Here’s what this means for beneficiaries:
- Retired Workers: The average monthly benefit would rise from $1,975.34 in 2025 to over $2,000 in 2026.
- Disabled Workers: The average monthly benefit would exceed $1,600 for the first time.
- Survivor Beneficiaries: The average monthly benefit would surpass $1,575.
While crossing the $2,000 threshold is a psychological milestone, it may not be enough to address the financial challenges retirees face. Over the past decade, COLAs have averaged just 2.3%, and the 2026 projection falls slightly below that mark. More importantly, it may not keep up with the rising costs of essential expenses like housing and healthcare.
Why Retirees Are Still Falling Behind
Despite the positive trend of five consecutive years of COLAs above 2%, retirees continue to lose ground financially. The root of the problem lies in how inflation affects seniors differently than the general population. Retirees spend a disproportionate share of their income on shelter and medical care—two categories that have seen significant price increases in recent years.
For example:
- Shelter Costs: Rose 4.6% year-over-year as of December 2024.
- Medical Care Services: Increased by 3.4% over the same period.
These increases far outpace the average COLA, leading to a steady erosion of purchasing power. TSCL’s analyses highlight this troubling trend:
- From January 2000 to February 2023, the buying power of a Social Security dollar declined by 36%.
- Since 2010, purchasing power has dropped by 20%.
This means that even with COLAs, retirees are struggling to afford the same goods and services they could a decade or two ago. Unless future COLAs consistently outpace inflation in key categories like housing and healthcare, retirees will continue to face financial strain.
