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Social Security’s 2026 Cost-of-Living Adjustment (COLA) Will Make Dubious History

Updated: 27-10-2024, 10.32 AM

For a majority of the more than 51 million retired workers currently receiving a Social Security check, this income is vital to their financial well-being.

Since 2002, national pollster Gallup has conducted annual surveys to determine how reliant retirees are on the income they receive from America’s top retirement program. These polls have shown that 80% to 90% of retirees, including 88% in April 2024, count on their Social Security check, to some degree, to make ends meet.

With this payout laying a financial foundation for those who can no longer provide for themselves, there are few announcements more anticipated than the annual cost-of-living adjustment (COLA) reveal during the second week of October.

While the recently unveiled 2025 COLA, on paper, gave beneficiaries something to smile about, the 2026 COLA may be on track to make dubious history.

Hand holding a Social Security card.
Image source: Getty Images.

The purpose of Social Security’s cost-of-living adjustment is to help beneficiaries fight back against the effects of inflation.

As a hypothetical example, if the average price for a basket of goods and services purchased by seniors rises by 2%, Social Security benefits would, ideally, need to climb by a matching rate to ensure no loss of buying power. Social Security’s COLA is effectively the “raise” passed along most years that accounts for the pricing pressures faced by beneficiaries.

The history of the program’s COLA is a tale of two halves. Between 1940 and 1975, adjustments were made on an arbitrary basis by special sessions of Congress. During the 1940s, no COLA was passed along, while a record 77% COLA was administered in 1950.

Beginning in 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) became Social Security’s inflationary measure, which allowed for annual COLAs. The CPI-W has more than 200 different weighted spending categories, which is what allows this inflationary index to be reported as a single figure at the end of each month.

When calculating the cost-of-living adjustment, the Social Security Administration (SSA) uses only the trailing 12-month readings ending in July, August, and September (the third quarter). If the average Q3 CPI-W reading is higher than the comparable period of the previous year, aggregate prices have risen and beneficiaries are due a raise.

Social Security’s COLA represents the year-over-year percentage difference in average Q3 CPI-W readings, rounded to the nearest tenth of a percent.

US Inflation Rate Chart
US Inflation Rate Chart

Coming into this year, beneficiaries were hoping for a history-making moment. Following COLAs of 5.9% in 2022, 8.7% in 2023, and 3.2% in 2024, a raise of at least 2.6% would have marked the first time since 1997 that benefits jumped by this amount for four consecutive years. But while history wasn’t, ultimately, achieved, payouts are increasing by an above-average percentage.

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