Social Security beneficiaries receive an annual cost-of-living adjustment (COLA) to keep the purchasing power of benefits aligned with rising prices across the economy. The official 2026 COLA will not be determined until October 2025 because it depends on inflation data from the third quarter, which is collected between July and September.
However, The Senior Citizens League (TSCL), a nonprofit senior advocacy group, recently raised its 2026 COLA forecast to 2.3% based on recent economic data. That is higher than its January estimate of 2.1%. And while an upward revision sounds like good news, especially when so many retirees thought the 2025 COLA was too small, it actually comes with two piece of bad news.
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First, a 2.3% COLA could accelerate the timeline to Social Security Trust Fund depletion, leaving Congress with less time to resolve the program’s funding problems. Second, based on how COLAs are calculated, the 2026 cost-of-living increase will likely understate inflation. That means benefits could (once again) lose buying power next year.
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The 2026 COLA may leave Congress with less time to resolve Social Security’s financing problem
The Old Age, Survivors, and Disability Insurance (OASDI) Trust Fund is the account that holds payroll tax dollars until they are paid out in monthly Social Security benefits. Interest earned on trust fund assets is an important source of funding for the program, but it will disappear within a decade. The Trustees expect the OASDI Trust Fund to be depleted by 2035, at which point continuing income from taxes will cover 83% of scheduled benefits.
To elaborate, depletion of the OASDI Trust Fund does not mean benefit payments will stop. Instead, it means Social Security will lose a funding source — the interest income earned on trust fund assets — without which the program will only be able to pay 83% of scheduled benefits. That means benefits will automatically be reduced by 17% unless Congress finds a solution to the funding problem.
Importantly, the Trustees made several assumptions about the economy and population to estimate the insolvency date for the OASDI Trust Fund. One of those assumptions was that benefits will get a 2.2% COLA in 2026. But TSCL anticipates a larger COLA. If its estimate is correct, Social Security will spend more money than the Trustees anticipated in 2026, which would likely move the projected insolvency date forward.
Put differently, if Social Security’s 2026 COLA exceeds 2.2%, the OASDI Trust Fund may be depleted before 2035. Best-case scenario: That means Congress will have less time to find a fix for Social Security’s financing problem. Worst-case scenario: Automatic benefit cuts will happen sooner than anticipated. Either way, that’s bad news for retirees and other beneficiaries.
The 2026 COLA is on pace to underestimate the actual increase in the cost of living for retired workers
Social Security’s COLAs are based on a subset of the Consumer Price Index known as the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures inflation based on the spending patterns of adults in the workforce. However, those individuals are generally younger than Social Security beneficiaries, and young people generally spend money differently than retired workers.
Most importantly, retirees typically spend more on shelter and medical care, which means the CPI-W puts too little weight on those spending categories. Consequently, some policy experts think COLAs should be based on the Consumer Price Index for the Elderly (CPI-E), which measures inflation based on the spending habits of people aged 65 and older.
The CPI-E has increased faster than the CPI-W in recent years. The table shows the actual COLA in 2024 and 2025, which equals the percent increase in CPI-W inflation during the third quarter of the previous year, and the hypothetical COLA based on CPI-E inflation.
|
COLA Based on CPI-W Inflation |
Hypothetical COLA Based on CPI-E Inflation |
|
|---|---|---|
|
2024 |
3.2% |
4% |
|
2025 |
2.4% |
3% |
Data source: Bureau of Labor Statistics, Social Security Administration. Table by author.
As shown, Social Security recipients would have received bigger COLAs in 2024 and 2025 had the pay raises been based on CPI-E inflation rather than the CPI-W inflation. Put differently, assuming CPI-E inflation is the better measure of pricing pressure on retired workers, Social Security lost buying power in 2024 and 2025 because benefit payments failed to keep pace with inflation.
Unfortunately, early data suggests that problem will continue next year. In January 2025, the CPI-W increased 3%, while the CPI-E increased 3.1%. If CPI-E inflation continues to increase more quickly through the year, the 2026 COLA will once again underestimate the cost-of-living increase needed to preserve Social Security’s buying power. That’s bad news for retirees and other beneficiaries.
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