Each year, the Social Security Administration announces the new cost-of-living-adjustment (COLA) index for Social Security beneficiaries. This statistic increases the benefits for recipients for beneficiaries to hold the same buying power with their payments amidst inflation and increasing expenses. While the new COLA for the next year is usually announced in October of the current year, The Senior Citizens League is already estimating what the new 2026 COLA could be.
How is the COLA calculated each year?
The COLA statistic is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is announced each year by the Bureau of Labor Statistics (BLS). The CPI-W measures the changes in prices of specific expenses that workers are exposed to. It tracks the changes in common expenses urban workers purchase and provides an estimate of how prices are changing based on that.
This statistic is then applied to the SSA benefits through the COLA statistic to ensure beneficiaries can retain buying power with their benefits. However, using the CPI-W to inform COLA has received criticism in the past. Firstly, it is a statistic that is applied retroactively, meaning that the increase for the new year is based on price changes for the previous year. This change could therefore not be entirely helpful for the new year, where price changes could change dramatically compared to last year.
In addition, the CPI-W is based on the consumer spending habits of working individuals. This means that COLA receives an inaccurate representation of what is applicable for changing expenses relevant to senior citizens, who make up the majority of COLA beneficiaries. The spending habits of senior citizens are different from those of employed people, particularly when it comes to medical expenses.
How the 2026 COLA will impact this group
According to The Senior Citizens League, next year’s predicted COLA is forecasted to be at 2.4%. This would be the lowest COLA since pre-COVID, and reflects the fact that inflation is slowing down and prices are stabilizing. While it may seem counterintuitive to want a lower increase, beneficiaries must remember that the higher the COLA increase, the more price variability is occurring.
COLA is not only applied to retirement SSA beneficiaries. The statistic also impacts VA disability compensation recipients. Also managed by the SSA, these benefits are for the following beneficiaries, according to the SSA website:
“The VA pays disability compensation to veterans who have a service-connected disability resulting from a condition that was incurred during or aggravated by active military service,” describes the SSA.
These benefits are different from Social Security disability benefits, and individuals who have served in the military and incurred a service-related disability may be entitled to both payments. Veterans are some of the most vulnerable members of society, who are at increased risk of mental health conditions and economic uncertainty.
How beneficiaries can supplement their income
Despite the latest 2026 COLA projection being an indication of a healthy economy, many beneficiaries worry that they still cannot keep up with the rising costs of living. To account for this, both current and future beneficiaries must look at ways to supplement their retirement benefits. Beneficiaries need multiple sources of income for financial stability.
One way to increase your benefits and diversify your retirement portfolio is to start investing. By leveraging the power of compound interest over time, you can develop a robust and comprehensive investment portfolio where you can receive multiple sources of income instead of only relying on your SSA benefits to support you. Even a small amount invested each year goes a long way when you consider how, over the years, this money will grow if you give it enough time.
