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KEY TAKEAWAYS
- The 2026 Social Security cost-of-living adjustment is 2.8%, but experts say this won’t be enough for retirees to keep up with rising costs.
- Older Americans generally have higher expenses than the typical worker, as the increasing costs of Medicare and prescription drugs are stretching their budgets.
- To better reflect the expenses of older Americans, the COLA could be based on an inflation index that specifically tracks prices for those 62 and older.
Social Security benefits aren’t keeping pace with the expenses of older Americans, but experts say an easy change could adjust the program to provide beneficiaries with sufficient income to cover their costs.
The Social Security Administration said Friday that benefits will increase by 2.8% in 2026. This cost-of-living adjustment happens yearly and is calculated based on inflation during the third quarter, but many experts say it will not be enough to keep up with beneficiaries’ expenses.
Benefits Can’t Keep Up
Premiums for Medicare Part B, which is used by 63 million disabled or older Americans, are expected to outpace the 2026 COLA, rising by 11.6% next year. In addition, COLA’s failure to keep up with costs means those on Social Security have lost 20% of their buying power from 2010 to 2024, according to a report by The Senior Citizens League.
To remedy the gap between benefits and inflation, Shannon Benton, executive director of The Senior Citizens League, said the federal government should consider using an inflation index that better reflects the expenses of older Americans in particular to determine the COLA. The Senior Citizens League has also called for a one-time $1,400 stimulus check to help beneficiaries afford rising costs.
Why This Matters
About 71 million Americans rely on the help of their Social Security benefits to afford their health care and groceries, with nearly 22 million people relying solely on their benefits for their income. If the Social Security COLA continues to lag behind beneficiaries’ expenses, many will have to make up for it by working longer or returning to work.
How This Can Be Resolved
The Social Security COLA currently uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to estimate how much expenses have increased over the year for Social Security beneficiaries, and adjust benefits accordingly. However, many experts say this measure does not accurately reflect the actual expenses of the millions of retirees on Social Security.
Instead of CPI-W, which shows the expenses of the average worker, Benton said the Social Security Administration should use the Consumer Price Index for Americans 62 years of age and older, called CPI-E.
Why Beneficiaries Spend More
In September, expenses as measured by the CPI-E were almost 10% higher than those measured by the CPI-W. The majority of that difference is due to the fact that retirees spend much more than workers on health care, rent, prescription drugs, and transportation, Benton said.
In addition to the rising cost of Medicare, higher prices for health care services and prescription drugs are taking a big bite out of budgets. The average 65-year-old who stops working in 2025 can expect to spend $172,500 on health insurance and medical expenses during their retirement, according to an estimate by Fidelity Investments.
Additionally, Benton said, older Americans typically hold onto their cars for longer. The costs of maintaining an older car, alongside higher car insurance costs, make transportation more expensive for this group.
“[Beneficiaries] should call their members of Congress and tell them that they want the Social Security COLA calculated using the CPI-E,” said Benton. “While they listen to your advocates, they really listen to their constituents. Those are the votes.”
There are some limitations to using the CPI-E. This inflation index is still experimental and is not yet used by government agencies. It’s drawbacks include the relatively small number of households measured by this index and a higher sampling error. The Bureau of Labor Statistics also says CPI-E also doesn’t account for any senior discounts, which could lower costs.
However, many beneficiaries are struggling to keep up with their expenses on their current Social Security checks. In a recent Nationwide survey, nearly a third of retirees said they have had to cut spending on essentials, and about 77% of older Americans told AARP their benefit checks do not keep up with rising prices.
Last year, several Senate lawmakers proposed requiring the SSA to use CPI-E when calculating the COLA. However, the bill did not move forward, and it may be a tough sell in Congress, as Social Security funds are already being depleted.
