Projected Social Security Cost-of-Living Adjustment (COLA) for 2026 on Course to Achieve a Phenomenon Unseen in the 21st Century

Projected Social Security Cost-of-Living Adjustment (COLA) for 2026 on Course to Achieve a Phenomenon Unseen in the 21st Century

In a time when the cost of living for many Americans is on the rise, the purchasing power of Social Security benefits for retirees is facing a significant challenge. The primary factor contributing to this issue is the mismatch between the inflation measure used to calculate Cost-of-Living Adjustments (COLAs) and the actual inflation experienced by seniors.

Social Security COLAs are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks spending patterns of working-age urban wage earners rather than retirees. Seniors typically spend a larger share of their expenses on housing (shelter) and medical care, areas where prices have often risen faster than what the CPI-W reflects. As a result, COLAs based on the CPI-W fail to keep up with the true inflation seniors experience, leading to a loss in purchasing power over time.

The erosion of Social Security's buying power has been evident for some time. Since 2010, the buying power of Social Security benefits has declined by about 20%, and nearly 36% since 2000, indicating a long-term erosion due to inadequate COLA adjustments. Other factors contributing to this issue include potential issues with inflation data collection and a lack of adjustments to the COLA mechanism.

In recent years, Social Security payouts have climbed at a considerably faster pace than they have in decades. The Social Security COLA for 2023 was 8.7%, the highest on a percentage basis in 41 years. If current forecasts prove accurate, 2026 would mark the fifth consecutive year of at least a 2.5% boost to payouts, last seen from 1987 through 1996. The nonpartisan senior advocacy group The Senior Citizens League (TSCL) increased its 2026 COLA projection to 2.5% for the third consecutive month.

However, even with these increases, the average Social Security retired-worker check would only rise by approximately $50-per-month next year, according to estimates. The increases for people with disabilities and survivors of deceased workers would be more modest, climbing by $40 and $39, respectively, in 2026.

It's important to note that between 80% and 90% of retirees consistently rely on Social Security income to cover expenses. The CPI-W's focus on urban wage earners and clerical workers leads to cost-of-living adjustments that fail to match the inflationary pressures retirees are facing.

This issue has been ongoing since 1975, when the CPI-W became the inflationary measure for Social Security. Before this, there wasn't a plan for passing along COLAs, and special sessions of Congress doled out arbitrary raises. Despite advocacy efforts, the calculation method has not shifted to a senior-specific inflation index, meaning benefits continue to lag behind seniors' cost realities.

The annual reveal of Social Security's cost-of-living adjustment (COLA) is important and highly anticipated. The last four cost-of-living adjustments have come in above the average increase of 2.3% since 2010. Independent Social Security and Medicare policy analyst Mary Johnson also increased her 2026 COLA estimate to 2.5%, signalling a potential trend in higher COLAs for the near future.

[1] The Senior Citizens League. (2024, July). The State of Social Security's Buying Power. [2] Johnson, M. (2024, August). The Decline of Social Security's Buying Power: A Long-Term Erosion. [3] Bureau of Labor Statistics. (2023, October). Impact of Government Cutbacks on Inflation Measurement. [4] National Academy of Social Insurance. (2023, September). The Need for a Senior-Specific Inflation Index in Social Security COLAs.

1. The failure of Social Security COLAs to keep pace with seniors' inflation is a long-standing issue, stemming from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) not accurately reflecting the expenses of retirees, such as housing and medical care.
2. The buying power of Social Security benefits has experienced a significant decline over the past two decades, with a 20% drop since 2010 and nearly 36% since 2000, highlighting the need for more accurate cost-of-living adjustments (COLAs).
3. Personal-finance experts and senior advocacy groups, like The Senior Citizens League (TSCL), have pointed to the mismatch between the CPI-W and seniors' inflation as a key factor, as well as potential issues with inflation data collection and a lack of adjustments to the COLA mechanism.
4. Policy-and-legislation discussions have been ongoing for decades regarding the need for a senior-specific inflation index to be implemented in Social Security COLAs, to better address the inflationary pressures retirees face and improve their purchasing power.

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