Key Points
-
The latest estimates call for a 2026 COLA of 2.7%, although we won’t know for sure until October.
-
The inflation metric used to calculate the COLA isn’t doing a great job of tracking expenses on older Americans.
-
Medicare Part B premium increases could consume a large portion of the COLA.
After the July inflation data was released, the latest estimates from the Senior Citizens League are calling for a Social Security cost-of-living adjustment, or COLA, of 2.7% for beneficiaries in 2026. This is one-tenth of one percentage point greater than the prior estimate and would be a raise from the 2.5% COLA that went into effect this year. https://seniorsleague.org/tscl-cola-projection-8-25/
Social Security COLAs help retirees and other beneficiaries keep up with the rising costs of goods and services. And while a higher estimated COLA might sound like good news, there are a couple of good reasons it might not be enough. Here’s what all retirees and other Social Security beneficiaries should know.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »
Image source: Getty Images.
Medicare premiums could consume a lot of the COLA
The first reason the 2026 COLA might not be enough is Medicare premiums. Specifically, Social Security beneficiaries who are over 65 and enrolled in Medicare typically pay their Medicare Part B premiums directly from their Social Security checks.
Here’s the key point. Although the COLA is expected to add 2.7% to Social Security benefits, Medicare Part B premiums are expected to rise by 11.6%, from $185 per month this year to $206.50 per month in 2026.
The average retired worker would get a $54 monthly increase from a 2.7% COLA. However, $21.50 of this would be consumed by Medicare premium increases. This would make the effective increase $33.50 per month that can be used to help pay for living expenses.
This isn’t exactly a unique occurrence for 2026. Over the past five years, Social Security COLAs have produced a cumulative increase of about 23% for beneficiaries. In the same period, Medicare Part B premiums have risen by 28%, consuming more and more of the Social Security checks of Medicare beneficiaries.
The CPI-W isn’t the best inflation metric for the elderly
When calculating the Social Security COLA, the inflation metric that is used is a variation of the consumer price index called the CPI-W. This increased by 2.5% year over year in July and is intended to measure inflation as it affects workers. This creates an obvious issue — most Social Security beneficiaries are retired, and different goods and services affect them differently.
There’s another metric called the CPI-E that is specifically designed to measure the effects of inflation on the elderly. Just to name a couple examples, seniors tend to spend a greater portion of their income on healthcare and housing than the average American household. In July, the year-over-year inflation rate for outpatient hospital services was 6.4%. Housing costs have increased by 3.7% over the past year. Overall, the CPI-E increased by 2.9% year over year in July, 0.4% more than the CPI-W.
When will we know the 2026 Social Security COLA for sure?
As it stands, because of a combination of expected Medicare premium increases and senior-specific costs rising faster than the Social Security Administration’s preferred inflation metric, the COLA might not do its intended job of helping seniors keep up with the cost of living.
As a final point, it’s important to realize that we don’t know for sure what the COLA will be for 2026. It’s based on third-quarter CPI-W data (July, August, and September), and we’ve only seen one of those monthly reports so far. We’ll know for sure how much of a raise seniors will get when finalized third quarter inflation data is available in mid-October.
The $23,760 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income.
One easy trick could pay you as much as $23,760 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Join Stock Advisor to learn more about these strategies.
View the “Social Security secrets” »
The Motley Fool has a disclosure policy.
