Retirees Face Shortfalls Despite 2026 Social Security Cola Increase

Millions of older Americans will see a 2.8% increase in their monthly Social Security checks starting in January due to a recent Social Security Administration (SSA) cost-of-living adjustment (COLA), but experts say the boost still falls short of keeping up with real costs for retirees.

Prices for groceries, housing and medical care are rising closer to 3.1% per year, and only 22% of Americans ages 50 and older told AARP they believe the upcoming COLA will be enough. As a result, many retirees may still see their purchasing power eroded.

The mismatch stems from the way COLAs are calculated. Currently, the SSA bases annual increases on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a measure designed around the spending habits of younger, urban workers.

An alternative measure, the Consumer Price Index for the Elderly (CPI-E) weights housing, health care and utilities more heavily and would have produced a 3.1% increase in 2026 instead of 2.8%, according to Investopedia.

COLAs based on the CPI-W have lagged behind the CPI-E in each of the past three years — and in 18 of the past 26 years, by an average of 0.2% annually. This has meant that retirees’ annual raises haven’t always kept pace with the inflation of their most common expenses.

Even with a switch to the CPI-E formula, rising Medicare costs could offset some gains, Newsweek reported. Medicare Part B premiums, which are set to rise from the current level of $185 to $202.90 in 2026, continue to eat into COLA gains and outpace benefit increases.

Social Security benefits have increasingly lagged behind inflation. While 60% of cost-of-living adjustments outpaced inflation in the 1990s and 2000s, that fell to 40% in the 2010s and only 20% in the early 2020s — except for the 8.7% increase in 2023 driven by pandemic-era inflation.

The Senior Citizens League (TSCL) reports that retirees who started benefits in 1999 have lost nearly $5,000 in lifetime payments compared with what they would have received under CPI-E. For those retiring in 2024, the shortfall could exceed $12,000 over a 25-year retirement.

TSCL also estimates that Social Security benefits have lost roughly 20% of their value since 2010. To fully restore their purchasing power, retirees would need an additional $370 per month, or $4,440 annually.

Congress has introduced two bills aimed at addressing the gap as any change to how the COLA is calculated would require a change in federal law.

The Boosting Benefits and COLAs for Seniors Act would overhaul how annual adjustments are calculated, while the Social Security Emergency Inflation Relief Act would temporarily add $200 per month to benefits until July 2026.

According to Newsweek, both proposals are backed by Democratic Sens. Elizabeth Warren, Kirsten Gillibrand, Ron Wyden and Chuck Schumer, among others.