Retirees are likely to see only a modest rise in Social Security benefits next year when the Social Security Administration (SSA) announces the 2026 cost-of-living (COLA) increase in the fall.
The COLA, which takes into account year-over-year percentage changes in a subset of the Consumer Price Index (CPI), determines the increase in the checks of over 72.5 million Americans that receive Social Security benefits and Supplemental Security Income (SSI) payments.
In 2025, the COLA was 2.5%; resulting in an average monthly benefit increase of approximately $49. The increase for 2026 isn’t shaping up to be much larger. The latest projection is for an increase of 2.2% year-over-year, a figure 0.1% lower than last month’s rate.
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The Consumer Price Index (CPI-U) for all items rose 2.9% from December 2023 to December 2024. The COLA came in slightly lower because it only takes into account the inflation rates for July, August, and September (the third quarter) compared to the same period of the previous year. And the COLA is computed using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a subset of the CPI that tracks the expenses of a narrower slice of American households than the CPI-U.
2026 COLA Projections
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The new inflation numbers are out and that means the experts can update their 2026 COLA projections. The Senior Citizen’s League (TSCL) has rolled back its prediction from an increase of 2.3% in February to an increase of 2.2% for March, based on lower inflation rates. However, that is still .1% higher than the January projection of 2.1%.
|
Month |
Projected COLA |
CPI rate |
|
March |
2.2% |
2.7% (released in March for February) |
|
February |
2.3% |
3.0% (released in February for January) |
|
January |
2.1% |
2.9% (released in January for December) |
The average Social Security monthly check for retired workers was $1,978.77 in January of 2025, according to the Social Security Administration’s (SSA) Monthly Statistical Snapshot. Using that amount for illustrative purposes, a COLA of 2.2% would result in an average monthly increase of $43.53 or an annual average increase of $522.36.
Social Security beneficiaries are in a something of a catch-22 situation; there is only a big COLA when inflation is high, but low inflation, which is good for fixed incomes, means a low COLA. Fortunately, for Social Security beneficiaries that are struggling to make ends meet, there is some relief when the COLA is too low to cover the rise in Medicare Part B premiums.
The “hold harmless provision.” A special rule called the “hold harmless provision” protects Social Security benefit payments from decreasing due to an increase in the Medicare Part B premium. The Part B premium for 2025 is $185, which is $10.30 higher than the 2024 premium.
The provision is meant to protect low-income Social Security recipients from having their payments decrease from one year to the next because the increase in the Medicare Part B premium would be more than the COLA. The rule only applies to Social Security recipients who have their Part B premiums automatically deducted from their Social Security payments every month.
To qualify for the hold harmless provision, you must:
- Receive Social Security benefits or be eligible to receive Social Security benefits for November and December for 2024
- Your Medicare Part B premiums for November 2024 through January 2025 are deducted directly from your monthly Social Security benefits.
There are exceptions:
The hold harmless provision does not apply to you if:
- You enroll in Part B for the first time in 2025
- You pay an income-related monthly adjustment amount premium and don’t have them deducted from your Social Security check
- You are a high-income Social Security recipient who has to pay income related monthly adjustment amount (IRMAA) for Part B and Part D coverage
- If your Medicare Part B premiums are paid by their state Medicaid agencies
COLA Computation
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The CPI-W is used as the benchmark rate to compute the annual COLA. Its market basket reflects the expenditures of urban households that earn more than half their income from clerical and hourly wage jobs. It covers approximately 29% of the nation’s population. To calculate the inflation index, price changes are averaged with weights representing their importance in the spending of the particular group.
Over the years, there have been proposals to change the inflation index used to calculate the increase. Proponents want to use the Consumer Price Index for Americans aged 62 or older (R-CPI-E), better known as the CPI-E, in place of the CPI-W. The CPI-E price index reflects the costs of older adults more accurately. For example, medical expenses, an increasing burden on older adults, are weighted more heavily in the CPI-E. In one year medical care was weighted by the CPI-U at 6.9%, by the CPI-W at 5.6% and by the CPI-E at 11.3%. A similar disparity existed for medical care services at 5.2%, 4.3% and 8.3%, respectively.
Let’s use the 2024 numbers to illustrate how the COLA is computed by using the third quarter CPI-W numbers from 2024.
| Row 0 – Cell 0 |
2023 |
2024 |
|
July |
299.899 |
308.501 |
|
August |
301.551 |
308.640 |
|
September |
302.257 |
302.257 |
|
Third quarter total |
903.707 |
926.187 |
|
Average (rounded to the nearest 0.001) |
301.236 |
308.729 |
The CPI-W for the third quarter of 2024 is 308.729. Because this average exceeds 301.236 by 2.5%, the COLA effective for December 2024 is 2.5%. The COLA calculation, with the result rounded to the nearest one-tenth of one percent, is: (308.729 – 301.236) / 301.236 x 100 = 2.5%.
Bottom line
COLA increases, small and large, impact your ability to pay your expenses and save for a rainy day. While the current projection is 0.3% less than last year, there are still seven months until the official COLA is announced. These projections can help you track the trajectory of the next cost-of-living-adjustment and anticipate if you need to make changes to your spending and savings plans earlier to compensate for a low COLA.
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