Social Security's 2026 Cost-of-Living Adjustment (COLA) Is Likely to Be Bad News for Retirees

Re suggests that Less than one-third of retirees report being "very confident" when asked whether they have enough money to comfortably throughout retirement, according to a survey from the Employee Benefit Re Institute

In most cases, inflation is the reason for that lack of confidence, considering recent developments

Indeed, Social Security benefits have lost 20% of their purchasing power since 2010 because COLAs have failed to keep pace with inflation, according to The Senior Citizens League, a nonfit advocacy group

Here's why (remarkable data), given the current landscape

In contrast, Image source: Getty Images

At the same time, Social Security's COLAs may not accurately reflect the pricing pressures seniors face The Social Security Administration determines cost-of-living adjustments (COLAs) using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), in today's financial world

That metric tracks how prices change across eight major spending : Apparel Education and communication Food and beverages Housing Medical care Recreation Transportation Other goods and services Social Security's COLAs are calculated this: The third-quarter CPI-W from the current year is divided by the third-quarter CPI-W from the previous year, and the percent increase (if any) becomes the COLA in the next year

For instance, the CPI-W increased 2 (fascinating analysis)

Importantly, the spending used to determine CPI-W inflation are weighted based on the purchase patterns of persons in the workforce

That's a blem for Social Security recipients because they tend to be older than individuals of working age, and older people usually spend money differently

For instance, seniors generally spend more on housing and medical care, which means CPI-W inflation understates the importance of those spending

In other words, Social Security benefits will lose buying power next year

Moreover, Both estimates are based on jected CPI-W inflation in the third quarter, which is already a questionable method for calculating COLAs for the reasons discussed in the previous section, in today's market environment

However, CPI-W numbers are extra suspect this year because President Trump instituted a hiring freeze across federal agencies at the beginning of his second term, given the current landscape

The Labor Department (the federal agency responsible for tracking inflation) says that hiring freeze has limited its ability to conduct the surveys that determine the CPI-W

Consequently, the Labor Department is using a "less precise method for guessing price changes" this year, according to The Wall Street Journal, in today's market environment

And that is undoubtedly bad news for retired workers.