For many retirees, Social Security is a vital source of income. In fact, it helped lift 22.7 million people above the federal poverty line in 2022, with 16.5 million of them being adults aged 65 and older. A recent survey by The Senior Citizens League (TSCL) revealed that 67% of seniors rely on Social Security for more than half of their yearly income.

Given how crucial Social Security is for the financial well-being of our aging population, one of the most anticipated announcements for beneficiaries is the yearly cost-of-living adjustment (COLA). The early prediction for Social Security’s 2026 COLA is in, and it’s a mix of both good and bad news for retirees.

What is COLA and Why Does it Matter?

Social Security’s COLA is an adjustment made by the Social Security Administration (SSA) to keep up with inflation. Each year, Social Security checks are increased to ensure that retirees can keep purchasing the same goods and services they’ve been accustomed to, despite rising prices. For example, if the price of goods goes up by 3%, Social Security benefits are typically raised by a similar amount to make sure that retirees don’t lose their purchasing power.

This mechanism wasn’t always in place. Before 1975, COLA adjustments were rare and only happened through special sessions of Congress. Since then, the SSA has used the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to calculate COLA every year. The CPI-W includes over 200 price categories, which are weighted to determine whether the overall cost of living is rising or falling. The adjustments are made based on the average CPI-W from July to September.

Social Security’s 2026 COLA: What’s in Store?

The early prediction for the 2026 COLA is based on “cooling inflation,” which suggests it could be 2.1%. While this is the smallest COLA increase in five years, it is still higher than the 2.3% average increase since 2010. The decrease in energy prices and a reduction in the cost of vehicles are expected to help keep inflation lower.

A 2.1% increase would mean a $41 per month increase for retirees, bringing their average monthly Social Security check to about $2,017. Workers with disabilities and survivors would see their payments rise by $33 and $32, respectively. This increase would still help, but the gains may not keep up with rising costs.

The Good and Bad News for Retirees

The good news is that the rate of inflation is expected to cool down, which can be a relief for retirees. With inflation slowing, costs won’t rise as quickly, allowing retirees’ fixed incomes to stretch further. A 2.1% COLA, though small, means that inflation won’t erode retirees’ purchasing power too much in 2026.

However, the bad news is that the 2.1% COLA increase is still likely to be smaller than the rising costs of important expenses like housing and healthcare. Over the last year, housing prices have increased by 4.6%, and medical costs have gone up by 3.4%. For many seniors, these rising costs may outpace the COLA increase, leading to a decline in their overall purchasing power.

A study by TSCL showed that the value of Social Security dollars has already declined by 20% since 2010. As long as housing and medical costs keep rising faster than the COLA, retirees will continue to feel the financial strain.

What’s Next for Social Security Beneficiaries?

The COLA is crucial for Social Security recipients, but it’s not always enough to keep up with inflation. While the 2.1% projected increase in 2026 will provide some relief, it is important to recognize the larger financial challenges that seniors face, particularly with housing and healthcare costs.

Retirees can still benefit from exploring other ways to boost their income. There are little-known strategies that could add as much as $22,924 to their annual Social Security benefits. Learning how to maximize Social Security benefits can provide more financial security and peace of mind for retirees.

Disclaimer – Our team has carefully fact-checked this article to make sure it’s accurate and free from any misinformation. We’re dedicated to keeping our content honest and reliable for our readers.