Historic COLA hike in 2026 won’t be such good news for retirees: find out why

The Social Security Administration (SSA) announced a 2.5 percent raise to Social Security and Supplemental Security Income (SSI) benefits in 2025 - a move which will affect more than 72.5 million Americans.

The 2.5 percent cost-of-living adjustment (COLA) became effective in January 2025, with approximately 68 million Social Security beneficiaries set to receive increased benefits from April 9. Meanwhile, increased payments to nearly 7.5 million SSI recipients began on December 31, 2024. In total, 72.5 million will be impacted as some receive both benefits.

The COLAs are usually made annually and are calculated based on the value of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in the third quarter of the year (averaging the values from July, August, and September).

While the hike in benefits have come as a huge help this year, it could be a very different story next year, according to forecasts.

With the increased payments of the last COLA, over 52 million retirees have received a monthly Social Security check that averaged $1,980.86. But it’s almost certain that next year’s COLA will take those monthly payments past the $2,000 mark. Any adjustment over 1% in 2026 would do that - and so far, the forecast is that the COLA will be around 2% at least.

Calculating the COLA for 2026

Earlier this month, the US Bureau of Labor Statistics (BLS) released its inflation report for February which noted that the Consumer Price Index (CPI) for All Urban Consumers rose 0.2 percent, seasonally adjusted, and rose 2.8 percent over the last 12 months, not seasonally adjusted.

The BLS adjusted its COLA forecast for 2026 to 2.2%, down from 2.3%. If things remain as they are over the next six months, the average retired workers’ check will rise by about $44 per month next year.

While that might sound like good news, retired workers could find themselves even worse off that they are now. That’s because the CPI-W is geared towards the spending habits of those of working age and less focused on shelter and medical care expenses - the things which retirees spend most of their money on - expenses that continue to rise.

Essentially, retirees will find that once again they have less spending power.

What is the Cost-of-Living Adjustment (COLA)?

The Cost-of-Living Adjustment (COLA) is an alteration made to salaries or other benefits payments such as Social Security or pensions due to changes in the cost of living from one time period to another.

COLAs only increase benefits, so in deflationary years when the CPI-W drops there is no COLA.

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