The average Social Security payout for roughly 52 million retired workers in January was $1,978.77. Despite being a somewhat small monthly payment, this has traditionally been essential in helping retirees make ends meet. Over the past 23 years, Gallup has conducted surveys with retirees to determine how dependent they are on their Social Security payments.
According to all 23 polls, between 80% and 90% of participants need at least a part of their income to pay for their expenditures. It should not be surprising that the annual cost-of-living adjustment (COLA) revelation is the most anticipated announcement each year, given the critical role Social Security plays in the financial security of our country’s aging workforce. A latest Social Security 2026 Cola Update prediction offers retirees a mixed bag, even though the formal announcement is still eight months away.
Social Security 2026 COLA Update
Citing a decrease in inflation throughout the course of the next year, the nonpartisan Senior Citizens League projects a 2.3% Cost of Living Adjustment in 2026. A 2.1% increase in COLA is predicted by Mary Johnson, an impartial specialist on Social Security and Medicare. In 2025, the Senior Citizens League estimates that the average senior household would save almost $3,000 annually if Social Security benefit taxes were eliminated.
Based on 3rd quarter inflation data, the official COLA for 2026 will be shared in October 2025. To adjust payments to account for inflation, or the rising cost of goods and services, the Social Security Administration uses the cost-of-living adjustment. As long as the rate of inflation for the expenditures that matter most to retirees continues to rise faster than the anticipated or announced COLA, their buying power will decline.
Calculation of COLA 2026
To calculate COLA, SSA looks at an indicator known as PI-W, they basically compare the costs of everyday items in the third quarter (July, August, and September) to the same time last year. As prices rise, so do your benefits. The Social Security Administration adjusts benefits to reflect inflation, or the rising cost of goods and services, by using the cost-of-living adjustment.
Why COLA is so important for retirees?
The method by which the Social Security Administration adjusts payments to reflect inflation that is, the growing cost of goods and services is known as the cost-of-living adjustment. Let us make an assumption that the average price of a wide range of products and services that seniors frequently buy rises by 3% annually. Seniors’ purchasing power would diminish and they would be unable to buy as much with their Social Security checks if benefits stayed the same. One technique that aims to maintain benefits in step with the growing cost of goods and services is the COLA.
Between January 1940, when the first retired-worker compensation was made, until 1974, there was no pattern, rationale, or procedure for these modifications. Instead, raises were arbitrary and passed through special sessions of Congress. As a result, after no adjustments were made for the entire 1940s, retired-worker recipients received the highest COLA in history, which was 77% in 1950.
Then in 1975, the COLA was calculated via CPI-W, as the yearly inflationary measure. With over 200 weighted spending categories, the CPI-W may be stated as a single, easily understood number that shows whether prices are generally growing (inflation) or declining (deflation). The COLA calculation only uses figures from 3rd quarter (July through September), even though BLS reports the CPI-W on a monthly basis. Inflation has taken place and recipients are entitled to a rise if the average CPI-W measurement for the third quarter of this year is higher than the similar period from the prior year.
Projected COLA Increase for 2026
To maintain the buying power of payments in line with growing costs across the economy, Social Security recipients receive an annual cost-of-living adjustment, or COLA. As official 2026 COLA is dependent on third-quarter inflation data, which is gathered between July and September, it will not be decided until October 2025, but based on new economic statistics, TSCL has increased its 2026 COLA projection to 2.3%, however its January estimate of 2.1% was lower than that. As many retirees felt that the 2025 COLA was too low, an upward increase may seem like good news, but it really has two negative aspects.
Due to latest 2.5% cost-of-living adjustment (COLA), the average benefit has increased to $1,976 per month. That is almost $49 more than the December 2024 average. Although this rise is preferable to benefits staying the same, retirees who are already suffering with growing expenses probably will not find their lives any more pleasant. The Senior Citizens League (TSCL) estimates that since 2010, Social Security’s purchasing power has decreased by 20%, and this trend is probably going to continue until 2025.
Even though it is still a long way off, some people are already looking forward to the COLA next year in the hopes that it would provide some respite. Although the actual COLA will not be known for months, some alarming predictions are already in circulation.
State & Union: Forecasted Social Security COLA less than 2025’s
The cost-of-living adjustment for 2026 is predicted to be around 2.3%, which is 0.2% less than the 2.5% COLA from the previous year. This suggests that Social Security benefits may be adjusted in 2026. According to SCL, retirees who are already impacted by inflation may find this to be terrible news and few members of Congress, however, are trying to change the situation.
To lessen the financial burden on many older Americans, Rep. Thomas Massie of Kentucky has reintroduced the older Americans financial Elimination bill, which was first offered in 2023 and would remove income taxes on Social Security benefits. The Senior Citizens League calculated that if Social Security benefit taxes were removed in 2025, the average senior household would save around $3,000 a year. As it is based on third-quarter inflation statistics, the official 2026 COLA Release Date will be revealed in October 2025.
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Samarth Choudhary is a Chief Editor at keralacobank.com. He has overall editorial experience of 10 years in online media. He has completed his graduation from University of California and masters in Finance from University of Dallas in year 2010. His major interest and expertise is in Finance, Taxes, Government Aid and Schemes. His Major focus is to help users to get relevant information which are published on keralacobank.com in easy and precise form.