Key Points
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Social Security hikes retirees’ benefits almost annually, to help them keep up with inflation.
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The measure of inflation Social Security uses may not be the best one, though.
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Prepare for Social Security to provide only a portion of your retirement income, and perhaps a small portion.
The news is hot off the press. The Senior Citizens League (TSCL) has recently updated its estimate for the upcoming Social Security cost-of-living adjustment (COLA) for 2026. The number, 2.7%, is probably not as big as you’d like — though it would be bigger than 2025’s 2.5% increase. The Social Security Administration’s (SSA’s) announcement of the actual increase is expected in October.
Here’s a look at Social Security COLAs in general, along with what an increase of 2.7% would mean for retirees.
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Cost-of-living adjustments, in context
If you were hoping for a hefty increase, such as perhaps 10%, sorry. Remember that these nearly annual increases are tied to inflation, and over many decades the average inflation rate has been roughly 3%. That’s not to say that such a big hike can’t happen, though. Check out some recent years’ COLAs:
|
Year |
COLA |
|---|---|
|
2020 |
1.6% |
|
2021 |
1.3% |
|
2022 |
5.9% |
|
2023 |
8.7% |
|
2024 |
3.2% |
|
2025 |
2.5% |
Data source: Social Security Administration.
These COLAs take effect in December, so if the upcoming hike is 2.7%, it will happen in about four months. Given that the average monthly Social Security benefit was recently $2,007 (as of July), a 2.7% increase would boost that to $2,061, a $54-per-month bump. That certainly doesn’t seem like much, but it would mean about $648 more over the year.
Remember, though, that the $2,007 average benefit is just that — an average. Those who have earned more than average will collect higher-than-average benefits. So if, say, you were collecting $3,000 per month, your increase would be $81 per month, for a new benefit of $3,081. You’d be getting $972 more for the year.
A COLA controversy
You might assume that calculating each year’s COLA is straightforward and simply based on inflation. You’d be wrong, though, because there are multiple measures of inflation, and many object to the one used for Social Security increases.
Social Security uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) — which is arguably the wrong inflation measure to use. That index is based on changes in the average prices of household goods such as food, housing, and transportation. It’s focused more on costs borne by workers than on costs borne by retirees, though.
The Consumer Price Index for the Elderly (CPI-E) would be a better measure for calculating Social Security COLAs, as it weighs categories such as healthcare and housing more heavily.
The folks at TSCL note:
According to TSCL’s research, Social Security benefits have lost over thirty percent of their purchasing power since 2000 due in large part to inadequate COLAs and rising healthcare costs. To address this growing issue, TSCL urges Congress to adopt legislation that would base the COLA on an inflation index specifically for seniors, like the Consumer Price Index for the Elderly (CPI-E).
Social Security and your retirement
While Social Security benefits are vital retirement income for most retirees, it’s best if we don’t count on them as much. That’s because Social Security’s coffers were already being depleted and were in need of some fixes by Congress. But changes enacted by the Trump administration are likely to deplete Social Security’s funds even faster.
So what should you do? Well, it’s worth trying to increase your future benefits — perhaps by trying to earn more. Remember that the longer you delay claiming your benefits, the bigger they’ll get — and some studies suggest that the best age at which to claim, for most people, is age 70.
Here are some more retirement savings strategies to consider:
- Save aggressively and invest effectively. Many people may need to sock away much more than 10% of their income, and we should consider parking our long-term dollars in stocks, perhaps via a low-fee S&P 500 index fund.
- Make good use of tax-advantaged retirement accounts such as IRAs and 401(k)s. Traditional accounts offer upfront tax deductions, while Roth accounts can leave you with tax-free withdrawals in retirement.
- It can be effective to set up multiple income streams for your retirement, which might include Social Security, dividend income, annuity income, income from rental properties, pension income, and so on.
Retirement planning is very important, so take some time to think through issues such as how much income you’ll need to retire with and how you’ll amass it. Come up with a plan and then stick with it.
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