The Social Security Administration (SSA) has announced that benefits will rise by 2.8% in 2026, based on the official measure of inflation, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The annual Cost of Living Adjustment (COLA) is meant to help retirees and other beneficiaries maintain purchasing power as prices rise, but the government’s calculation may be underestimating the true inflation felt by consumers.
The COLA is determined by comparing the average CPI-W for the third quarter (July–September) of one year to the same period the year before. The difference in those averages sets the percentage increase in benefits. For 2026, the CPI-W figures were: July 2.5%, August 2.8%, and September 2.9%. Averaged together, they yield 2.73%, which (surprisingly) the SSA rounded up to 2.8%.
The following table shows the COLA increases since 1975.
CPI-W vs. CPI-U
At first glance, that looks like a generous adjustment until you compare it with the broader CPI-U, the inflation index more commonly used by the general population. The CPI-U numbers were slightly higher at 2.7%, 2.9%, and 3.0% for those same months, averaging 2.87%. That means that if the SSA used the more inclusive CPI-U instead of CPI-W, the COLA might have been closer to 2.9%. In effect, retirees are getting a slightly smaller adjustment than what most Americans experienced in rising prices.
This isn’t unusual. The CPI-W, which focuses on wage earners and clerical workers, often understates inflation for retirees because it places less weight on expenses like medical care and housing costs that typically rise faster than average and make up a larger share of spending for older Americans.
A similar situation occurred in 2022, when the CPI-W readings for the third quarter were 9.1%, 8.7%, and 8.5%, averaging 8.76%, yet the SSA rounded the COLA to 8.7%. That adjustment was one of the largest in four decades, but even then, many retirees found that their benefit increases lagged behind their actual living expenses.
Another problem with the COLA adjustments is that they only happen “in arrears”, i.e., they only take effect a year after you have already been paying higher prices.
CPI-E
If the government really wanted to be fair, they would use their CPI-e (Consumer Price Index for the Elderly) but although it has been calculated since December 1982, it is still considered “experimental”. Probably, because if they ever make it official, it would require increasing the Social Security COLA even above what the CPI-U suggests. The CPI-e for July through September 2025 was 2.9%, 3.1%, and 3.1% respectively, so if the SSA based their COLA on that index the COLA would probably have been at least 3%.
COLA is Crucial
Despite the ongoing debate about accuracy, the COLA plays a crucial role in the financial well-being of millions of Americans. Nearly nine out of ten people age 65 and older receive a Social Security benefit, and those payments account for about 31% of their total income on average. For many, especially those without significant retirement savings, the annual adjustment determines how well they can keep up with rent, food, and healthcare costs.
It’s worth noting that the recent government shutdown is not expected to affect Social Security payments. Benefits will continue to be paid on schedule, regardless of political gridlock in Washington.
Over the past decade, the average COLA has been about 3.1%, though inflation spikes and slowdowns have made year-to-year changes unpredictable. The 2025 COLA was 2.5%, and the upcoming 2.8% increase for 2026 suggests modest inflation but continued price pressures in essentials like housing and healthcare.
The Social Security Act mandates how the COLA is calculated, tying it directly to the CPI-W as published by the Department of Labor’s Bureau of Labor Statistics. While that formula ensures consistency, it also highlights a growing policy debate — whether the CPI-W still reflects the spending realities of today’s retirees.
For now, beneficiaries can expect a 2.8% boost in their monthly payments starting January 2026 — a modest increase that may still leave many seniors feeling the pinch of an economy where their costs continue to outpace official inflation measures.
