Some retirees ‘wish it would be more’

Social Security and Supplemental Security Income beneficiaries will soon find out how much their benefit checks will increase next year.

Due to the federal government shutdown, the Social Security 2026 cost-of-living adjustment announcement, initially scheduled for Oct. 15, has been postponed to Friday. Nearly 75 million beneficiaries will see the COLA reflected in their January checks.

Experts have estimated the Social Security COLA for 2026 may be in the range of 2.7% to 2.8%, based on the latest available consumer price index data. That’s in line with the long-term average. But for retirees and other beneficiaries who rely on their benefit payments to cover essential expenses, the size of the increase might not ease their struggle with higher prices.

“I just wish it would be more,” said Kathryn Bailey, 74, of Washington, D.C.

Bailey, a retired oncology researcher, remembers when the 8.7% cost-of-living adjustment was put in place in 2023 in response to the post-pandemic spike in inflation. That COLA set a four-decade record for the inflation adjustment.

The approximate $135 monthly increase Bailey received then “helped, but I used it all,” she said.

The projected increase for 2026 “won’t do anything,” she said, citing high health care, rent, food and other cost increases.

Experts estimate the anticipated 2.7% to 2.8% possible increase for 2026 would add about $54 more to the average monthly retirement benefit check.

The size of the Social Security COLA is calculated each year based on the pace of inflation. So if the rate of inflation is higher, so is the COLA. And when inflation is lower, the annual adjustment is lower. In some years — most recently in 2016 — it has even been zero if there is no inflation increase from one year to the next.

Because the rate of inflation has come down in recent years, retirees and other Social Security beneficiaries have seen more modest cost-of-living adjustments. In 2024, the COLA was 3.2% and this year it was 2.5%.

The average COLA over the past 20 years has been 2.6%, according to The Senior Citizens League, a nonpartisan senior group.

The cost of retirement has outpaced inflation, according to recent research from Goldman Sachs Asset Management. While retirees’ spending increased at a 3.6% annual rate from 2000 to 2023, the consumer price index went up by 2.6% over that time, according to the firm.

While in recent years the pace of inflation has subsided overall from post-pandemic highs, some prices have stayed elevated.

The measurement used to calculate the COLA – the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W – shows that year-to-date increases for certain categories like household energy, motor vehicle maintenance and motor vehicle insurance have outpaced the average.

Yet some experts say the Social Security cost-of-living adjustment provides inflation protection that is difficult to match elsewhere.

“A 20% lift over four years is life changing, even though it might not match the economy itself,” David Freitag, a financial planning consultant and Social Security expert at MassMutual, said of the recent cost-of-living adjustments.

“These are significant increases that make a difference in people’s lives,” Freitag said.

Very few pension-type income streams offer similar types of annual adjustments, Freitag said. Annuities that offer similar features are “incredibly expensive,” he said.

Starting at age 62, the cost-of-living adjustments are built into benefits, Freitag said. Prospective retirees do not have to claim benefits then in order for those increases to be recognized in their benefit checks once they do eventually claim, he said.

The COLA plays a “crucial role” in helping retirement income keep pace with inflation and is a “lifeline of independence and dignity” for older Americans, AARP CEO Dr. Myechia Minter-Jordan said in a statement.

“Yet even with the COLA, 77% of older adults still face challenges covering basic expenses,” Minter-Jordan said, citing forthcoming AARP research.

Some experts and advocates have questioned whether another formula would be better suited to measure the inflation retirees experience.

Advocacy groups including The Senior Citizens League have lobbied to have the measure for the COLA changed to the Consumer Price Index for the Elderly, or CPI-E. That index puts greater emphasis on categories like medical care, housing and recreation, according to the Bipartisan Policy Center.

Other proposals have called for changing the calculation to be based on the Chained CPI, which takes into account the substitutions consumers make in response to inflation, such as opting to buy chicken when beef prices rise.

While Social Security’s chief actuary has estimated that using the CPI-E would increase future annual COLAs by about 0.2 percentage points, the Bipartisan Policy Center gauges that opting for the Chained CPI would reduce future annual COLAs by about 0.3 percentage points.

Increasing or reducing future COLAs would impact the solvency of Social Security’s trust funds, which already are projected to run out in 2034. At that point, 81% of benefits will be payable unless Congress enacts changes sooner, according to the latest annual report from Social Security’s trustees.

Another suggested change is limiting the size of the COLAs for individuals who receive the largest benefits. The Committee for a Responsible Federal Budget estimates that one model of such a proposal could close one-tenth of Social Security’s solvency gap while still providing full inflation protection for most beneficiaries.

D.C.-based retiree Bailey said she would like to see the COLA calculated another way to match the actual increases showing up in areas like health care, mortgage, rent and utility costs.

“I wish they would sit down and consider the percentage of things that have gone up,” Bailey said.