As prices appear to rise, so does the prospect of a larger cost of living adjustment for Social Security benefits in 2026.
As of mid-August, some experts predicted that Social Security benefits would increase by 2.7% next year due to the cost-of-living adjustment. It’s far from a final figure, as we still need two months of inflation data — August and September — to complete the calculation.
In 2025, Social Security beneficiaries received a 2.5% increase, down from a 3.2% COLA increase in 2024.
Extra money welcome as many fear higher prices
While many Social Security recipients would welcome an extra $50 or more per month in their checking accounts, they understand that the extra money will not go far because they are already paying high bills for health care, utilities, and other necessities.
Many people are still concerned about how much additional tariffs will raise prices on many items.
According to one survey, approximately half of those aged 61 and older are concerned about how tariff changes will affect their retirement savings or income.
According to the 12th edition of the Nationwide Retirement Institute’s Social Security Survey, roughly two-thirds of retirees believe President Donald Trump’s higher tariffs will drive inflation at least slightly higher than upcoming cost-of-living adjustments for Social Security.
The Harris Poll conducted a 22-minute online survey in the United States on behalf of Nationwide of 1,812 adults aged 18 and older who are currently receiving or expect to receive Social Security. The survey included 502 baby boomers aged 61 and older. The survey was conducted between June 2 and July 10.
When is the Social Security COLA hike announced?
We won’t know how much of a COLA jolt retirees and others will face next year until the official number is released in October.
The much-anticipated COLA number is typically released shortly after the September inflation data from the United States Bureau of Labor Statistics.
This year, the September inflation data is scheduled for release on October 15. The inflation data for August is scheduled to be released on September 11.
Social Security benefits would increase beginning with December benefits, which would be payable in January 2026. Federal Supplemental Security Income payments would increase in January, but would be made at the end of December.
How are inflation adjustments calculated?
The annual cost-of-living adjustment for Social Security benefits is based on the third-quarter inflation rate. The formula takes into account changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers for the months of July, August, and September.
The CPI-W data for the three months of 2025 will be averaged and compared to the third quarter average from last year. The Social Security Administration uses the percentage increase, if any, to determine any COLA increases. The Social Security Administration explains the complicated formula online.
The highest COLA increase during the most recent bout of inflation occurred in 2023, at 8.7%. This was the largest inflation adjustment since 1981, when the COLA increase was 11.2%. In 1980, the COLA for Social Security benefits was set at 14.3%.
Mary Johnson, an independent Social Security and Medicare policy analyst, stated that the latest inflation trend gives her reason to believe that the COLA number could rise even higher to 2.8% or higher if inflation rises in August and September.
Much uncertainty remains on where inflation is heading
Many consumer prices have remained relatively stable this summer. According to Labor Department data, new car prices increased by only 0.4% year over year in July. Prices for used cars and trucks rose 4.8%.
Manufacturers and producers are paying significantly more to import parts and other goods as a result of Trump’s tariffs. However, automakers and others have absorbed many of the higher costs so far, reducing profits.
Sticker shock, however, is expected to hit when consumers shop for 2026 model year cars and trucks, as more of those vehicles arrive on dealer lots, according to Cox Automotive. New car and truck prices are rising as lower-cost inventories of previous models leave dealership lots.
In July, the closely watched Consumer Price Index for All Urban Consumers increased by 2.7% year on year, before any seasonal adjustment. The figure remained the same in June.
However, inflation has increased in recent months. In April, the consumer price index rose 2.3% year on year, reaching its lowest level since February 2021. The CPI increased by 2.4% in May.
According to the U.S. Bureau of Labor Statistics’ August 12 report, the CPI rose 0.2% month over month on a seasonally adjusted basis in July, following a 0.3% increase in June.
Many analysts, however, are paying close attention to the producer price index, which tends to forecast higher prices before they reach consumers at the checkout. In July, the producer price index rose 0.9% month on month, far exceeding expectations and the largest increase in three years.
According to analysts, the producer price index and the consumer price index sent conflicting signals about inflation in July. One surged, while the other remained fairly steady.
As tariffs raise costs, it’s reasonable to expect that more price increases will be passed on to consumers.
It’s not just seniors who suffer from high prices
Inflation frequently causes increased financial hardship for older adults over time. After all, many people live on fixed incomes. Many rely primarily on their Social Security benefits.
However, experts argue that it has not always been the case that seniors suffer the most when prices rise.
According to Jeff Horwich, senior economist at the Federal Reserve Bank of Minneapolis, younger consumers experienced significantly higher inflation than older adults during the most recent inflation spike in 2021.
“Today all age groups are pretty close, with Americans 54 and older experiencing slightly elevated inflation versus other groups,” says Horwich.
The extent to which people can bear higher prices is heavily influenced by their source of income. Did they work for large corporations that offered raises that kept up with inflation? Or have their wages stagnated?
How much inflation erodes your current standard of living varies far more between individuals than the CPI figure indicates.
“The other side of every household balance sheet is the income coming in: How much capacity do they have to adjust and absorb increasing prices?” Horwich explained.
He also noted that the hardship caused by inflation can differ significantly from “one seemingly-similar” household to the next. Two neighbors are likely to experience much larger differences in inflation than differences in age or race.
Someone who owns a home, for example, with a fixed 30-year mortgage — or who has paid off their home — does not face the same financial stressors as someone who rents and sees their monthly rent rise dramatically each year.
According to Federal Reserve Bank of New York research, several groups have experienced higher inflation than the national average, including households led by people aged 55 and older, low-income consumers, many college-educated workers, urban households, and people living in the northeastern part of the country.
Johnson said that after years of conducting surveys, seniors frequently report experiencing higher rates of inflation than official data would indicate.
Health care consumes a larger portion of their budgets than it does for younger working adults. In July, hospital services increased by 5.8% year on year, according to Bureau of Labor Statistics data. Overall, medical services increased by 4.3%.
According to the Bureau of Labor Statistics, people aged 65 and older spend 13.4% of their income on medical care, compared to 8% for the general population.
“If health care is increasing faster than overall inflation as it is doing right now, the buying power of older and disabled consumers gets squeezed,” according to Johnson.
“Those with savings may need to dip more deeply into their nest egg than anticipated, those without enough savings may go into debt, and those without savings may need to turn to safety net programs,” according to her.
Other categories that outperformed overall inflation in July included shelter, which increased by 3.7%, transportation services, which increased by 3.5%, and food, which increased by 2.9% year on year.
Based on data from 2023, the Bureau of Labor Statistics found that older adults spend more on groceries, housing, utilities, and health care than the general population. Horwich said they spend less money on things like eating out and transportation.
Take four categories: food at home, housing, utilities, and healthcare. For adults 65 and older, those four spending groups account for 64.6% of their spending. In contrast, those categories account for 49.8% of expenditures among adults aged 45 to 54.
People over the age of 65 spend 35.7% of their income on housing, 8.3% on groceries, 7.2% on utilities, and 13.4% on healthcare.
In July, the average Social Security benefit was $1,863.12 per month for all beneficiaries, including survivors and disability benefits. According to the Social Security Administration’s monthly statistical snapshot, retired workers earned an average of $2,006.69 per month.
Richard Johnson, director of the Urban Institute’s Program on Retirement Policy, estimated a 2.7% COLA increase for Social Security beneficiaries.
If so, a 2.7% COLA increase would result in an average monthly increase of $50 for all beneficiaries beginning in 2026, or approximately $600 per year.
Some retirees may face an additional $54 per month beginning in 2026, assuming they receive the average monthly benefit of $2,006.69.
Remember, however, that many people receive a lower-than-average monthly Social Security payment and may see a $25 to $30 increase per month next year due to a 2.7% COLA hike.
According to Johnson of the Urban Institute, many seniors are experiencing slightly higher inflation this year than the general population.
“Seniors devote a lot of their spending to medical care and housing, and those items have experienced sharper price increases than other items this year,” he informed me.
While tariffs pose a significant threat to retirees in the coming year, he stated that price increases caused by higher tariffs on imported goods are only now beginning to affect consumer prices.
“So, they won’t be reflected much in this year’s COLA,” Mr. Johnson explained.
He believes that higher tariff-related prices will result in a larger COLA in 2027.
“That could force many retirees and people with disabilities to curb their spending in 2026,” he predicted.
Even if they do not receive Social Security, older adults can expect some relief next year.
Many seniors will benefit when they file their federal income tax returns next year if they can take advantage of a new temporary, bonus deduction of up to $6,000. If both spouses are 65 or older, each could receive up to $6,000 or a total of $12,000 for the senior bonus deduction in any given tax year.
This is referred to as a “special personal exemption” by tax professionals, and it aims to reduce many seniors’ tax bills. In general, high-income seniors would be ineligible, as would low-income seniors who do not pay taxes.
A senior who qualifies for the “senior bonus” will save money on taxes based on their taxable income, which determines your marginal tax rate.
At a marginal tax rate of 12%, the $6,000 deduction for a single taxpayer 65 or older saves $720 in taxes.
At the same time, other costs are projected to rise.
Older adults must factor in rising Medicare Part B premiums, which will be announced later in 2025.
Currently, Medicare Part B premiums are expected to rise by $21.50 per month in 2026, to $206.50 per month from $185 per month in 2025.
