Social Security payments are designed to help millions of Americans, especially retirees, disabled individuals, and survivors, maintain a basic standard of living. One of the key features of Social Security benefits is the annual Cost of Living Adjustment, or COLA, which is intended to keep payments in line with inflation. Inflation means the general rise in prices for goods and services over time, which reduces the purchasing power of money. If Social Security payments did not increase with inflation, beneficiaries would effectively lose income each year as their fixed benefits buy less and less.
The way Social Security COLA is calculated is by looking at a specific measure of inflation called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index tracks the average change in prices paid by urban consumers for a basket of goods and services. The Social Security Administration compares the average CPI-W for the third quarter (July, August, and September) of the current year to the same period in the previous year. If prices have increased, Social Security benefits are adjusted upward by that percentage for the following year.
For example, recent data shows that inflation has been somewhat persistent, with the Consumer Price Index rising by about 2.7% to 2.9% year-over-year in the months leading up to the 2026 COLA announcement. This means Social Security beneficiaries can expect their payments to increase by roughly 2.7% in 2026, which translates to an average monthly benefit increase of around $54 for retired workers. While this increase helps offset inflation, many argue that it may still fall short of covering the true rise in living costs, especially for seniors who face higher expenses in areas like healthcare and housing.
One reason the COLA might not fully keep up with inflation is that the CPI-W does not perfectly reflect the spending patterns of older adults. Seniors often spend a larger share of their income on healthcare, which tends to rise faster than general inflation. Because the CPI-W includes a broad mix of goods and services consumed by urban wage earners, it may understate the inflation experienced by retirees. Some advocacy groups have pushed for using an alternative measure called the Consumer Price Index for the Elderly (CPI-E), which weights healthcare and other senior-related expenses more heavily. However, the CPI-E is not currently used for Social Security adjustments.
Another factor complicating the picture is the rising cost of Medicare premiums. Even if Social Security benefits increase due to COLA, higher Medicare Part B premium
