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.
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