On Oct. 24, the Social Security Administration announced the official cost-of-living adjustment (COLA) for 2026 despite the government shutdown. Retired workers and other recipients will receive an additional 2.8% in benefits next year to offset rising prices across the economy.

That 2.8% COLA is three-tenths of a percentage point larger than the 2.5% pay increase beneficiaries received this year. It’s also a historic figure because it brings the average COLA over the last four years to 4.6%, a level last seen four decades ago when oil shocks caused inflation to spike.

However, more than half of retired workers surveyed by The Motley Fool said the COLAs were insufficient in 2024 and 2025, and many Social Security beneficiaries will likely feel the same way about the COLA in 2026. Read on to learn more.

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How Social Security’s 2026 COLA was calculated

The size of Social Security’s cost-of-living adjustment (COLA) in any given year depends on how the CPI-W (a subset of the Consumer Price Index) changed in the third quarter of the previous year. For instance, CPI-W inflation measured 2.8% in the third quarter of 2025, so Social Security benefits will increase 2.8% in 2026.

The Social Security Administration reports the average retired worker will receive an additional $56 per month (or $672 for the full year) in 2026. Comparatively, the average retired worker received an additional $49 per month (or $588 for the full year) in 2025.

The problem with the CPI-W is the reference population. It tracks inflation based on spending habits of hourly wage earners and clerical workers, but younger individuals in the workforce tend to spend money differently than seniors on Social Security. And the CPI-W typically underestimates inflation (from the perspective of seniors) by two-tenths of a percentage point per year.

Why Social Security’s 2026 COLA may be too small

The CPI-W assumes housing and medical care account for 42% and 7% of total spending, respectively, for the average person. But the average senior spends about 48% and 11% of their money, respectively, within those categories. That means the CPI-W understates the importance of housing and medical care expenses from the perspective of older individuals.

That was a particularly big problem this year because prices in those product categories increased faster than the overall CPI-W. That means Social Security’s COLA will underestimate inflation from the perspective of seniors. Put differently, the COLA will not fully offset the increase in senior living expenses.

How can the problem be solved? Some experts believe Social Security’s COLAs should be determined based on the CPI-E, another subset of the Consumer Price Index. The CPI-E tracks inflation based on spending habits of individuals aged 62 and older, meaning the reference population aligns much more closely with the Social Security population.

CPI-E inflation measured 3% in the third quarter of 2025, meaning Social Security’s 2026 COLA would have been 3% had it been based on that metric. While not a particularly big difference in dollars — the average retiree would receive an extra $60 per month (rather than $56) — the impact becomes more consequential over long periods.

Here’s the big picture: Retired workers may be disappointed with Social Security’s 2026 COLA because it likely underestimates the extent to which their living expenses have been impacted by rising prices. A too-small COLA means benefits will lose a little purchasing power next year. To make up the difference, retirees may need to be a little more frugal with their spending in 2026.

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