Why the ‘Historic’ 2026 Social Security COLA Will Still Leave Retirees Behind

For much of 2025, seniors on Social Security had one big question: What would their 2026 cost-of-living adjustment (COLA) amount to?

It’s an understandable question.

Among Social Security recipients ages 65 and older, 39% of men and 44% of women receive 50% or more of their income from those monthly benefits. And within that same age group, 12% of men and 15% of women depend on Social Security for 90% or more of their income.

In 2026, Social Security’s COLA will be higher than 2025’s. That COLA will also be significant for another reason. But that doesn’t mean retirees on Social Security will be able to keep up with their costs.

Why 2026’s Social Security COLA will be historic

In 2026, Social Security recipients are in line for a 2.8% COLA, which is a notch higher than the 2.5% raise they received at the start of 2025. The reason that COLA is so significant is that it represents the highest five-year COLA average in 40 years.

Here’s what the past five announced COLAs have looked like:

• 2022 – 5.9%
• 2023 – 8.7%
• 2024 – 3.2%
• 2025 – 2.5%
• 2026 – 2.8%

All told, that’s an average COLA of 4.62%.

The reason recent COLAs have been so substantial boils down to the soaring inflation the pandemic fueled. Prior to 2022, the last time Social Security recipients got a COLA above 5% was 2009, when they received a 5.8% raise.

Of course, there was a period of time in the early 1980s where COLAs exceeded the 10% mark. Back then, inflation was truly rampant.

In the past couple of years, inflation has been stubbornly elevated, but nowhere close to as high as it was back in the early 1980s, or in the immediate post-pandemic years. But it remains a problem for seniors nonetheless.

The flaw in the COLA formula

Although seniors on Social Security are in line for a decent COLA in 2026, it’s likely to fall flat. And the reason boils down to a big flaw in how Social Security COLAs are calculated.

Social Security COLAs are determined based on third quarter changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The problem is that the CPI-W is not particularly reflective of the specific costs seniors on Social Security tend to face.

Healthcare is not a heavily weighted category in the CPI-W, but it tends to be a significant expense for Social Security recipients. And in recent years, healthcare inflation has well outpaced broad inflation.

Just look at what’s happening with Medicare premiums in 2026. The standard cost of Part B is rising a whopping $17.90 year over year. And that’s one single expense.

Urban wage earners and clerical workers, by contrast, generally spend a smaller percentage of their income on healthcare than seniors do. And for this reason, advocates have been pushing to change the COLA formula to be based on a senior-specific index.

The nonpartisan Senior Citizens League points out that Social Security beneficiaries lost 20% of their buying power between 2010 and 2024 due to insufficient COLAs. This clearly makes it an issue lawmakers need to address.

However, lawmakers also have their hands full trying to shore up Social Security’s finances in the coming years to prevent benefit cuts. So a change to the COLA formula may not be too imminent.

Protecting purchasing power: strategies for 2026

If you’re a retiree who gets most of your income from Social Security, it’s important to recognize that 2026’s COLA may fall short. It’s important to take steps to protect yourself financially in light of that.

First, make sure your portfolio is working for you at maximum capacity. Review your asset mix and make sure you have enough income-producers to make up for what could be a rather insignificant Social Security raise. A mix of dividend stocks and ETFs could help you maintain solid buying power without exposing you to the volatility of growth stocks and ETFs.

Next, review your spending. There may be expenses you can shed or reduce, and doing so could help you preserve more of your Social Security checks.

One expense to look at in particular is housing. If money’s been tight, it may be time to consider downsizing, especially with U.S. home values remaining strong. If you’re able to cash out equity, that’s even more money you can invest and use as supplemental income.

Finally, consider working in some capacity if you don’t have much income coming out of your portfolio and downsizing isn’t an option. You’re allowed to work while receiving Social Security benefits, and you won’t have to worry about income caps once you’ve reached your full retirement age (FRA).

Even if you haven’t reached FRA, the rules for working while on Social Security are fairly flexible. You can earn up to $24,480 in 2026, or $65,160 if you’ll be reaching FRA later in the year, without risking having benefits withheld.

It’s important to be realistic about what the upcoming Social Security COLA will and won’t do for your finances. That raise may give you a little extra money, but overall inflation could wipe it out, especially if broad costs rise or you’re hit with a large amount of healthcare spending. The sooner you create a backup plan, the more financially secure you can feel heading into 2026.