2026 Social Security COLA – A Historic Adjustment that Sparks Concern

For over 51 million retired Americans, Social Security benefits are a financial lifeline, crucial to daily survival. According to recent Gallup polls, around 88% of retirees rely on these benefits to some extent to cover essential expenses. Therefore, Social Security’s cost-of-living adjustment (COLA), which addresses inflation’s impact, is eagerly awaited each October.

The recent 2.5% COLA increase for 2025 brings a modest raise, but it might not fully offset rising costs. Even more concerning is that the 2026 COLA could potentially see no increase, a rare occurrence in Social Security’s history.

COLA

Social Security’s COLA is designed to protect retirees against inflation by adjusting benefits annually based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Ideally, if a basket of goods and services rises by 2%, the COLA would also increase by 2%, ensuring retirees maintain their purchasing power. However, recent COLA calculations reflect less purchasing power for recipients because inflation, particularly in essential categories, often outpaces these adjustments.

The history of Social Security’s COLA policy reveals two distinct periods. From 1940 to 1975, Congress sporadically authorized adjustments, with the largest increase being a 77% COLA in 1950. In 1975, however, automatic COLA adjustments tied to the CPI-W were introduced, making COLA an annual and consistent measure of inflation. The SSA calculates COLA based on CPI-W figures from July through September and rounds the percentage to the nearest tenth. If inflation falls or remains stable, no increase is provided, but benefits are never reduced.

Increase

The SSA recently announced a 2.5% COLA for 2025, surpassing the 15-year average of 2.3%. For the average retired worker, this increase translates to a monthly benefit increase of around $49, raising the average payout to $1,976. Meanwhile, disability and survivor benefits are also expected to see an increase, with average payouts rising to $1,580 and $1,551, respectively.

While a 2.5% COLA may sound beneficial, the reality is that inflation in essential categories like housing and medical services exceeds this increase. Medical care, for example, is projected to rise by 7.5% in 2025, leaving many retirees still grappling with the rising cost of living.

To complicate matters, Medicare Part B premiums, typically deducted from Social Security checks, are expected to rise by 5.9%, offsetting much of the COLA benefit. This $10.30 increase in monthly Part B premiums reduces the net benefit for most retirees.

Historical Increases

The above table highlights the persistent gap between COLA increases and actual cost increases in medical expenses, emphasizing the challenges many retirees face.

COLA 2026

Looking ahead, early signs suggest a potential 0% COLA in 2026. Over the past 50 years, there have only been three instances where deflation led to no COLA, in 2010, 2011, and 2016. Current economic indicators show a decelerating inflation rate, with categories like energy and automotive prices decreasing. If this deflationary trend continues, retirees could see no adjustment to their benefits in 2026. While Social Security benefits don’t decrease in deflationary years, a 0% COLA would mean no increased support, potentially straining budgets for retirees already coping with high prices.

Other economic indicators hint at a possible recession in 2025, which could trigger further price declines. The New York Federal Reserve’s recession prediction tool, which uses Treasury yield spreads, currently estimates a 57% chance of a recession by September 2025. Additionally, a sharp reduction in M2 money supply in 2023 indicates decreased discretionary spending, a common recession indicator. Historically, recessions reduce overall prices, meaning another 0% COLA in 2026 would be likely.

Retirees

The potential for a 0% COLA in 2026 highlights the importance of financial planning for retirees. Social Security provides a foundational income, but it often falls short in covering inflation, particularly in essential spending areas. Retirees may consider investigating options to maximize Social Security benefits, budgeting for increased healthcare costs, and researching ways to supplement Social Security income to maintain financial stability.

While a lot can happen over the next year, current economic conditions suggest that Social Security’s 2026 COLA might be another turning point, with retirees bracing for limited inflation relief. Financial planning, budgeting, and knowing benefit maximization strategies remain key as retirees navigate these uncertain economic times.

FAQs