Personal Finance
Social Security COLA 2026 sparks call for change to calculation
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A Social Security cost-of-living adjustment of 2.8% will go into effect in 2026, increasing retirement benefits by $56 per month on average, according to the Social Security Administration. With many older Americans struggling to keep up with rising prices, the moderate adjustment is reigniting a long-standing debate on the calculations that go into the COLA.
The size of the latest cost-of-living adjustment is about average. Out of 51 COLAs that have been put into effect since 1975, the 2026 adjustment ranks at No. 29, according to The Senior Citizens League.
Yet just 10% of seniors are happy with the annual COLAs, a recent survey from the nonpartisan senior group found, based on responses from 1,920 adults age 62 or older.
The COLA is assessed each year to help benefits for approximately 75 million Americans keep pace with rising costs. Changing the underlying data used in its calculation could affect the size of beneficiaries’ payments, and also have implications for Social Security’s trust funds, which are running low.
The Social Security cost-of-living adjustment is calculated based on a subset of the consumer price index, formally known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.
“CPI-W has always been the measure that was used,” said Emerson Sprick, director of retirement and labor policy at the Bipartisan Policy Center.
The announcement of the COLA for 2026 prompted some Democrats in Washington to propose a bill to change the index used for the COLAs to the Consumer Price Index for the Elderly, or CPI-E, which some contend would better reflect seniors’ spending. Another group of Washington Democrats has pitched increasing benefits by $200 per month for six months in 2026 to help beneficiaries cope with elevated consumer prices.
“We want the CPI-E or 3%, whichever one is higher,” Shannon Benton, executive director at The Senior Citizens League, said of the group’s long-term campaign for a more generous COLA.
Social Security checks under different measures
Yet the data suggests that switching to a different COLA measure might not result in the substantial boost to benefits that retirees and other beneficiaries hope to see.
Based on the current COLA formula, a person who claimed a $1,000 monthly benefit in 2005 would be receiving $1,601 now, according to Sprick’s calculations.
If instead the COLAs had been indexed to the CPI-E over that period, their benefits would be $1,622 now, or just 1% more, according to Sprick.
Another measure that’s often suggested for the COLA — the chained CPI — would result in a benefit of $1,555 now, or 3% less than the current formula, Sprick’s calculations found.
Likewise, 2024 calculations by Alicia Munnell, a senior advisor at the Center for Retirement Research at Boston College, found the average annual rate increase for the CPI-W was 2.5% from 2000 to 2023, based on CPI data from the Bureau of Labor Statistics. The CPI-E would have pushed that average annual rate of increase to 2.6% in those years, while the chained CPI would have resulted in a 2.2% average boost to benefits, Munnell found.
“It all depends on when you retire,” said Mary Johnson, an independent Social Security and Medicare analyst, who is among the advocates for switching to the CPI-E.
“In some years, it would have made a very big difference,” Johnson said. “In other years, not so much.”
Yet over the course of a 20- to 25-year retirement, indexing the COLA to the CPI-E would result in slightly higher benefits — and that compounds over time, she said.
COLA calculations under other indexes
The current index used to calculate the COLA, the CPI-W, measures the changes in prices for a basket of goods and services consumed by urban wage earners and clerical workers.
It is a subset of the broader CPI index used to measure the rate of monthly and annual inflation, or the Consumer Price Index for All Urban Consumers, or CPI-U. The CPI-W and CPI-U indexes track each other very closely, according to Sprick, and over time will produce the same average COLAs.
The CPI-E weights expenditures differently compared with the CPI-W, with medical care, housing and recreation costs comprising a larger portion of the index, according the Bipartisan Policy Center. Other costs — including apparel, education, food and transportation — are not emphasized as much as they are in the CPI-W.
Another index, the chained CPI, shows how consumers adjust their buying behavior in response to price changes across categories, such as substituting chicken when the price of beef rises.
The chained CPI is “most accurate” because it includes a broader segment of the population, according to Romina Boccia, director of budget and entitlement policy at the Cato Institute, who is among the advocates for changing to that measure.
The chained CPI represents 1 out of 8 Americans in its calculation, while the current index used for the COLA, the CPI-W, includes the purchasing behavior of 1 in 3 Americans who are not seniors, Boccia said.
The chain component of the CPI reflects not only inflation, but also its impact on purchasing power, she said.
“That’s what we’re really trying to account for, is the purchasing power of the Social Security benefit,” Boccia said. “We’re trying to keep that fixed.”
Updating the way the COLA is measured, and in turn, the benefits people receive, would have an impact on Social Security’s trust funds. The trust fund the program relies on to pay retirement benefits may run out in 2032, according to the Social Security Administration’s latest projections based on changes in the “big beautiful” legislation Congress passed in July.
A switch to the chained CPI would reduce the program’s shortfall by 14%, while turning to the CPI-E would increase it by 11%, according to the Bipartisan Policy Center, citing estimates from the Social Security chief actuary.
Even as Social Security faces long-term funding woes, 34% of respondents in The Senior Citizens League survey said they would want the Trump administration and Congress to prioritize better COLAs, while 33% said they would want fixing the program’s finances to come first.
Some experts say other reforms could help
Many of today’s seniors say the current COLA only goes so far to help with higher costs. Prices for electricity, natural gas and meat are still up significantly, said Johnson, who is retired.
“Heaven help you if you have a flat tire or you need to do something with your car,” Johnson said. “Just the parts are so expensive these days.”
Beneficiaries are also expected to face higher Medicare Part B premiums in 2026. Medicare’s trustees have projected the standard monthly premium may rise 11.6% to $206.50 next year, up from $185 per month in 2025. Because those premiums are typically deducted directly from Social Security checks, they will affect how much of the COLA beneficiaries may see reflected in their checks.
How far Social Security benefits go depends on the area in which a retiree lives, according to the Elder Economic Security Standard Index, which was developed by the Gerontology Institute at the University of Massachusetts Boston to measure the income older adults need to pay for their basic needs and age in place.
“While the cost-of-living adjustment is important, there are still too many people who are at the maximum benefit they can withdraw, whether it’s individual or with a spouse, [that] is still really low,” said Michelle Putnam, director of the Gerontology Institute.
Social Security is the primary source of income for 40% of older Americans, according to AARP.
To help shore up benefits for those who are struggling, some experts, including Boccia at the Cato Institute and Sprick at the Bipartisan Policy Center, say broader benefit reform is necessary.
“Certainly, benefits should be strengthened for some beneficiaries; the way to do that is not through COLA,” Sprick said.
Instead, the way benefits are calculated could be changed to ensure that beneficiaries who are at the lower end of the lifetime earnings distribution receive an adequate benefit from the time they claim, he said.
The Federal Reserve held interest rates steady at the conclusion of its policy meeting on Wednesday.
In what could be Jerome Powell’s last as chair before President Donald Trump’s yet-to-be-confirmed nominee Kevin Warsh takes the helm, central bankers maintained the federal funds rate in a target range of 3.5% to 3.75%.
Inflation has surged since the war with Iran began, leaving policymakers with limited room to act, according to Sean Snaith, the director of the University of Central Florida’s Institute for Economic Forecasting. “We’re in a kind of suspended animation — between Iran and the Fed transition,” Snaith said.
Before the oil shock, inflation was holding above the Fed’s 2% target but not worsening. Now the jump in energy costs could have longer-term inflationary effects, economists say.
For Americans struggling in the face of higher gas prices and overall affordability challenges, the central bank’s decision to keep interest rates unchanged does little to ease budgetary pressures. “The cavalry isn’t coming anytime soon,” Snaith said.
How the Fed decision impacts you
The Fed’s benchmark sets what banks charge each other for overnight lending, but also has a trickle-down effect on many consumer borrowing and savings rates.
Short-term rates are more closely pegged to the prime rate, which is typically 3 percentage points above the federal funds rate. Longer-term rates, such as home loans, are more influenced by inflation and other economic factors.
Credit cards
Most credit cards have a short-term rate, so they track the Fed’s benchmark.
After the Fed cut rates three times in the second half of 2025, the average annual percentage rate has stayed just under 20%, according to Bankrate.
“Without Fed rate cuts, there’s not much reason to expect meaningful declines anytime soon, so carrying a balance will remain very expensive,” said Matt Schulz, chief credit analyst at LendingTree.
Mortgage rates
Fixed mortgage rates, on the other hand, don’t directly track the Fed but typically follow the lead of long-term Treasury rates.
Concerns about how the Iran war will impact the U.S. economy have already pushed the average rate for a 30-year, fixed-rate mortgage up to 6.38% as of Tuesday, from 5.99% at the end of February, according to Mortgage News Daily.
That leaves homeowners with existing low mortgage rates “feeling stuck,” said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. “Mortgages, more than any other credit type, work on a churn,” she said, referring to how a dip in rates can boost borrowing activity.
Student loans
Federal student loan rates are also fixed and based in part on the 10-year Treasury note, so most borrowers are somewhat shielded from Fed moves and recent economic uncertainty.
Current interest rates on undergraduate federal student loans made through June 30 are 6.39%, according to the U.S. Department of Education. Interest rates for the upcoming school year will be based in part on the May auction of the 10-year note.
Car loans
Auto loan rates are tied to several factors, including the Fed’s benchmark. Because financing costs remain elevated, new car buyers are taking on longer loans to keep their monthly payments manageable, according to the latest data from Edmunds.
Even so, with the rate on a five-year new car loan near 7%, the average monthly payment on a new car rose to $773 in the first quarter of 2026, an all-time high.
“Car buyers are in a tough spot right now because they’re getting squeezed from both ends: high sticker prices and high interest rates, with neither showing any signs of letting up,” said Joseph Yoon, consumer insights analyst at Edmunds.
“Until the rate picture shifts, buyers will keep stretching loan terms to make payments work, which only adds to the total cost of ownership down the road,” Yoon said.
Savings rates
While the Fed has no direct influence on deposit rates, the yields tend to be correlated with changes in the target federal funds rate. So, although rates on certificates of deposit and high-yield savings accounts have fallen from recent highs, they are holding above the annual rate of inflation.
For now, top-yielding online savings accounts and one-year CD rates pay around 4%, according to Bankrate.
“Yields on high-yield savings accounts and certificates of deposit are down from their peaks of a few years ago, but they’re still strong compared to what we’ve seen for most of the past decade,” Schulz said.
Milan Markovic | E+ | Getty Images
The average tax refund is 11.2% higher this season, compared with about the same period in 2025, according to the latest IRS filing data.
As of April 10, the average refund amount for individual filers was $3,397, up from $3,055 about one year ago, the IRS reported on Friday.
The IRS data reflects about 114 million individual returns received, out of about 164 million expected through Tax Day. Next week’s filing update is expected to include data through the April 15 deadline.
President Donald Trump‘s 2025 legislation, rebranded to the “working families tax cuts,” was a key talking point for Republicans on Tax Day.
With the November midterm elections approaching and Republicans defending slim majorities in Congress, many GOP lawmakers have highlighted Trump’s tax breaks and higher average refunds.
Meanwhile, affordability has been top of mind for many Americans amid rising costs of gas, electricity, food and other living expenses.
For filers who expected a refund this season, nearly one-quarter, or 23%, planned to use the funds to pay down credit card debt, and the same share said they would save the payment, according to the CNBC and SurveyMonkey Quarterly Money Survey, released in April. It polled 3,494 U.S. adults at the end of March.
Who benefited from Trump’s ‘big beautiful bill’
“It’s been a great tax season for the American people,” many of whom have benefited from Trump’s tax breaks, Treasury Secretary Scott Bessent said during a White House press briefing on Wednesday.
More than 53 million filers claimed at least one of Trump’s “signature new tax cuts” — the deductions for tip income, overtime earnings, seniors and auto loan interest — the Department of the Treasury also announced on Wednesday.
Those filers, who claimed the deductions on Schedule 1-A, have seen an average tax cut of over $800, according to the Treasury. Tax cuts can trigger a higher refund or reduce taxes owed, depending on the filer’s situation.
Some filers who itemize tax breaks have also seen benefits from the bigger federal deduction limit for state and local taxes, known as SALT. Trump’s legislation raised that cap to $40,000, up from $10,000, for 2025.
The latest SALT deduction limit change is expected to primarily benefit higher earners, according to a May 2025 analysis of various proposals from the Tax Foundation.
The Treasury has not released data on how many filers have claimed the SALT deduction during the 2026 filing season.
Traders work at the New York Stock Exchange on April 16, 2026.
NYSE
U.S. stocks climbed to record highs on Thursday against a backdrop of war, an oil supply shock and economic forecasts warning of stunted growth amid a protracted conflict.
Many investors may be thinking: Why?
Largely, it’s because the stock market is a barometer of what investors think will happen in the future, rather than an assessment of the present day, according to economists and market analysts.
Investors are essentially shrugging off the Middle East conflict as a blip that will be resolved relatively quickly, they said.
“The stock market isn’t trying to price what’s happening today,” said Joe Seydl, a senior markets economist at J.P. Morgan Private Bank. “The stock market is always trying to price what the world is going to look like six to 12 months from now.”
Why stocks have been ‘resilient’
The S&P 500, a U.S. stock index, fell about 8% in the initial weeks of the Iran war, from the start of the conflict on Feb. 28 to a recent low on March 30.
But stocks have rebounded since then, erasing all losses since the beginning of the war. The S&P 500 closed at an all-time high on Thursday — about 11% higher than its nadir at the end of March. That followed a record close on Wednesday.
“The market has remained very resilient in the face of the war and has rallied strongly on the prospect that it will be resolved,” said Mark Zandi, chief economist at Moody’s.
A ship waits to pass through the Strait of Hormuz following the two-week temporary ceasefire between the US and Iran, which is conditional on the opening of the strait, in Oman on April 8, 2026.
Shady Alassar | Anadolu | Getty Images
And while investors cheered the possibility of a diplomatic off-ramp to the conflict, the temporary ceasefire has appeared tenuous, with the U.S. and Iran each accusing the other of breaking the agreement.
Nations haven’t been able to reach a peace deal ahead of the ceasefire’s end. Vice President JD Vance said U.S. officials left peace talks in Pakistan over the weekend after the Iranian delegation refused to agree to American demands not to develop a nuclear weapon.
The markets ‘have memory’
Ultimately, the stock market is signaling a collective belief that tensions will ratchet down, the war will end in the near term and oil flows through the Strait of Hormuz will normalize, economists said.
That’s largely because investors have been conditioned to believe that President Donald Trump will back off if the economic pain becomes too intense, economists said — the so-called “TACO” trade, shorthand for “Trump always chickens out.”
“Investors strongly believe — and have been conditioned to believe — he’s going to stand down, find a way to pivot, declare victory and move on,” Zandi said.
Trump has pushed back on the notion of backing down, framing his brinkmanship as a savvy negotiating tactic.
Economists pointed to a recent example of this dynamic: in April 2025 during so-called liberation day, when the Trump administration levied a host of tariffs on U.S. trading partners.
Within days — after the stock market had cratered more than 12% — Trump announced a 90-day pause on those tariffs. Stocks then saw one of their biggest daily rallies in history following Trump’s reversal.
Investors remember that Trump often de-escalates geopolitical shocks — which is why they’ve seized on positive headlines that hint at progress in peace talks, for example, Seydl said.
“The markets have memory,” Seydl said.
AI stocks and the ‘tech boom’
Traders celebrating at the New York Stock Exchange on April 15, 2026, as the S&P 500 closed above the 7,000 level for the first time.
NYSE
There are other factors underpinning market resilience during wartime, economists said.
One is the investors’ enthusiasm for artificial intelligence and technology stocks, which account for almost half of the S&P 500’s market capitalization, Zandi said.
“Those stocks run on their own dynamic independent of anything, including the war in Iran,” Zandi said. “I think we would have been down a lot more and it would have been harder for us to recover had it not been for the very, very optimistic perspectives on AI.”
We’re in the middle of a “tech boom” — and investors are likely to remain optimistic until they think the tech cycle has run its course, Seydl said.
More broadly, stock investors are essentially making a bet on the future earnings growth of a company — and the earnings backdrop has been “pretty solid,” Seydl said.
Consumer spending appears to be stable, for example, economists said. And companies are getting a boost to their after-tax earnings from the GOP’s so-called “big beautiful bill,” which, among other things, made it easier to write off investments upfront and therefore reduce their tax liability, Zandi said.
Going forward
Experts said there will be an economic hit from the Iran war, though.
“Despite the recent news of a temporary ceasefire, some damage is already done, and the downside risks remain elevated,” Pierre-Olivier Gourinchas, director of research at the International Monetary Fund, wrote Tuesday.
A protracted conflict risks deep and global economic pain, he wrote.
Even if the conflict is short-lived — as the broad market expects — stocks are unlikely to march much higher until it’s clear the U.S. is on the other side of the war and its economic fallout, Zandi said.
If investors are incorrect, and President Trump doesn’t back down or quickly extricate the U.S. from the war, the stock market may see a “full-blown correction” or worse, Zandi said. A stock market correction is a decline of at least 10% from recent highs.
“Everyone thinks they know what the script is,” Zandi said. “Now they just need to follow the script. If they don’t, the market will have some real problems.”
The uncertainty provides yet another example of why the average investor with a long time horizon should stick to their investment plan and ignore the noise, experts said.
“Trying to time the market is very difficult if not impossible for the average investor,” Seydl said. “It’s better to take a long-term perspective and ride out bouts of volatility.”
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