The Social Security cost-of-living adjustment (COLA) for 2025 was implemented in January and already experts and beneficiaries alike are looking forward to the next rise that their benefits will get. The 2,5% raise promised to be insufficient, and it was an accurate prediction, only made worse by the instability that the new White House Administration has brought due to the new tariffs.
To get their minds off the problem, many are choosing to look ahead, with predictions as low as 2,2% from some entities. But we are getting ahead of ourselves.
What is the COLA and why is it so important for Social Security beneficiaries and benefits?
The COLA is the annual monetary increase that all benefits distributed by the Social Security Administration go through to be able to keep up with inflation. This is because benefits are not scalable and are fixed once the amount is set for you, so the only chance of earning more is to go back to work if you are retired or get further assistance if you are in other programs.
To ensure that at least the value of the payments is not being devalued too much, the Administration increases payments every year using the average value of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in the third quarter of the year (averaging the values from July, August, and September).
The use of this index has been controversial for years now, as this index measures the expenses of the average young city worker and does not take into account the needs of the elderly, epically when it comes to healthcare and housing, two of their largest expenses. For years it has been recommended that the authorities change the CPI-W for the CPI-E, which is the same data but weighted towards the expenses of those over 62. The plight has not worked until now, and it does not seem like it will in 2026 either.
So, what will be the increase that the more than 72.5 million Americans who receive benefits form the Social Security Administration? In its February update, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) for urban consumers increased by 0.2% with seasonal adjustments, while the unadjusted annual rise reached 2.8%. As a result, the agency has slightly lowered its cost-of-living adjustment (COLA) projection for 2026 to 2.2%, a modest drop from the previous estimate of 2.3%. If current trends continue, retirees may see their monthly Social Security payments go up by approximately $44 in the coming year.
While this might sound good, after all lower inflation is always a good thing, the fact that the CPI-W does not take into account the increase in healthcare costs that the elderly are going through every year is not. Most of the 2,5% increase of 2025 went towards paying the new Medicare Part B increase, leaving nothing for other needs, and while we still do not know if the price will rise again in 2026, the fact is that the elderly have been losing purchasing power for years and there seems to be no end in sight.
As a small piece of good news, following the most recent COLA, more than 52 million retired beneficiaries have been receiving average monthly payments of $1,980.86. Based on current projections, even a modest increase next year could push the average benefit above $2,000 for the first time. As long as the adjustment reaches at least 1%, which analysts expect to be closer to 2%, that milestone is likely to be crossed.
It is a small consolation for those who believe they are being shortchanged, but at least that means that the average retiree is earning a bit more than in previous generations and that might help some keep their heads above water.