Just How Low Will Next Years Cost of Living Adjustment (COLA) Really Be?

Key Points

• Key CPI data came out that will affect Social Security benefits.

• The Consumer Price Index that COLAs are based on shows a 2.6% increase, and experts now project the COLA will be between 2.6% and 2.7%

• This is around the same size as last year’s COLA so shouldn’t come as much of a surprise.

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Social Security benefits are a crucial income source for retirees. There are a few reasons for that, including the fact that benefits are guaranteed to last for life. The Cost of Living Adjustments, or COLAs, are also a big reason why benefits are so important to seniors as, unlike most other sources of retirement income, Social Security benefits are supposed to be protected against inflation. 

Unfortunately, retirees don’t always get the raises that they expect to receive, so retirees have reason to be concerned each year about whether their benefits bump will be big enough. There have been numerous years, for example, when the COLA was below 1.00% including in 205 and 2016, as well as in 2009 and 2010 in the aftermath of the Great Recession. So, will retirees see a small COLA again in 2025, or will seniors find themselves with a generous raise that helps them cover the bills?

How low will the 2026 COLA be for Social Security retirees?

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Based on the CPI-W numbers and future projections, experts now predict the COLA next year is going to be between 2.6% and 2.7%.  Of course, this could change, and it has been trending upward as inflation has picked up this year, but that’s the projection as of the most recently available numbers. 

That should not come as too much of a shock to retirees, as the COLA in 2025 was 2.5%. Next year’s raise is on track to be just slightly higher, but not enough to make a noticeable difference in the checks most retirees get. In fact, for those who receive the average benefit of $1,976, a 2.6% COLA would result in around a $51 benefits bump, while another 2.5% raise like the one received last year would have added around $49 to their payments. 

Large COLAs aren’t the norm, and they aren’t good news

Although this year’s benefit bump is pretty close to the one seniors saw last year, it’s smaller than the benefits increase most people have seen during the post-COVID era. In fact, when inflation peaked post-COVID, retirees actually saw an 8.7% raise in 2022. This was the largest raise since 1981, though, and it was the very high COLA that was out of the ordinary. Seniors can’t expect such a big bump each year, and it would actually not be very good for their finances to get one since COLAs are directly tied to inflation. The more prices go up, the bigger the raise.

Of course, many retirees have a lot of other income that is not protected against the effects of inflation, so smaller price increases and lower COLAs are usually better for them in the long run.  Retirees will also see their raises reduced if Medicare premiums rise, which they are expected to do. However, it’s worth noting that seniors are getting some extra tax deductions next year under the One Big Beautiful Bill, so fewer seniors will end up being taxed on Social Security benefits, and that will result in an extra boost beyond what the COLA offers.  

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