Social Security COLA 2026: Why your raise could be smaller than expected
The purpose of Social Security COLAs is to help beneficiaries maintain their buying power from one year to the next. Social Security COLAs are tied directly to changes in inflation. When inflation rises from one year to another, benefits go up. When there's no increase in inflation, or when there's a decrease, Social Security benefits stay don't get a COLA (but thankfully, they also don't go down).
At this point, many Social Security recipients are eager to know what 2026's COLA will amount to. In 2025, benefits got a 2.5% COLA. Many older Americans are hoping that 2026's COLA will be larger, or at the very least, the same.
But there may be a challenge in calculating next year's COLA that results in a lower raise for Social Security recipients. And it's something seniors need to prepare for.
How Social Security COLAs are calculated
Many people know that Social Security COLAs are based on inflation, but it's a bit more nuanced than that. COLAs are based on third quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a subset of the Consumer Price Index for All Urban Consumers (CPI-U).
In a nutshell, the CPI-U tracks changes in the cost of common goods and services. The CPI-W is similar but differs in the specific population it tracks (urban wage earners and clerical workers).
Senior advocates have tried to get lawmakers to change the way Social Security COLAs are calculated — essentially, because the CPI-W is not a very accurate measure of the costs beneficiaries tend to face. The typical Social Security recipient is not a clerical worker or urban wage earner, so the fact that this specific index is used for COLA purposes makes little sense to some. However, lawmakers have not exactly been rushing to make a change.
Why Social Security recipients could get shorted in 2026
The Senior Citizens League, an advocacy group, recently announced that based on inflation readings to date, 2026's Social Security COLA could come in at 2.5%. That's the exact same COLA beneficiaries received at the start of 2025.
However, the Senior Citizens League also flagged a big issue. Citing The Wall Street Journal, it said that a hiring freeze at the Bureau of Labor Statistics has limited the amount of price data the agency can collect. If the CPI-W doesn't have a complete set of data, it could result in an even smaller Social Security COLA than seniors should be entitled to in 2026.
Of course, it's possible that incomplete data could work in seniors' favor. But there's no way to know. And also, if the CPI-W is going to continue to be the measure for calculating COLAs, it should at least have accurate data. If that doesn't happen this year, seniors could be out of luck.
The Social Security Administration will be not be able to announce a 2026 COLA until October. But seniors who rely on those annual raises may have to brace for a disappointing number. Those who can't afford a stingy raise should make changes now, whether it's reducing spending, getting a part-time job, or both.
The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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