Inflation is the sort of thing that tends to creep up on people — at least most of the time. In recent years, it’s been in everyone’s face — and has made it very difficult for working Americans and retirees alike to keep up with their bills.

Thankfully, Social Security benefits, which many retirees rely on, are protected from inflation to some degree. That’s because those benefits are eligible for an annual cost-of-living adjustment, or COLA.

But data from The Senior Citizens League, an advocacy group, highlights what a poor job those COLAs have done through the years. Between 2010 and 2024, seniors on Social Security lost 20% of their buying power due to COLAs failing to actually keep up with rising costs as they relate to retirees.

It’s for this reason that advocates are pushing for changes to the way Social Security COLAs are calculated. But even if those changes come to be, it doesn’t mean that retiring on Social Security alone will be a good idea.

A more targeted measure

The current index Social Security COLAs are based on is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The problem is that the CPI-W does not do a good job of capturing the costs retirees face.

Put another way, the spending patterns of seniors on Social Security are apt to differ from those of people who are still working. And also, it’s not a given that Social Security recipients live in urban areas, and the CPI-W specifically focuses on urban wage earners. So all told, there’s a huge disconnect.

That’s why advocates have been pushing to base Social Security COLAs on the Consumer Price Index for the Elderly instead. That index would likely place more weight on spending categories like healthcare that are a huge expense for seniors in particular. If lawmakers agree to this change, it could result in more generous COLAs in future years.

Social Security won’t be enough, even with better COLAs

Larger COLAs could be a boon to retirees on Social Security. But even if lawmakers implement this change, it won’t suddenly make it a good idea to retire on Social Security alone.

The reality is that if you earn an average wage, Social Security will probably replace about 40% of it, assuming that benefit cuts don’t happen. But most retirees can’t live very well on a 60% pay cut. So even if changes occur that lead to more generous COLAs, it’s still important to have adequate savings so you can supplement your monthly Social Security checks.

To that end, aim to start funding an IRA or 401(k) plan as early on in your career as you can, and invest that money so it’s able to grow. If you’re not sure what investments to choose, you can consult a financial advisor.

If you’re not interested in hiring a financial advisor, you can always fall back on an S&P 500 index fund. This effectively allows you to invest your retirement savings in the broad stock market. It’s a great way to take the guesswork out of investing while making sure your portfolio is diversified.

A new, senior-specific formula for calculating Social Security COLAs could be a very good thing for retirees and lead to yearly raises that actually allow recipients to keep up with inflation. But that won’t change the fact that those benefits were never designed to replace workers’ paychecks in full. And you shouldn’t make the mistake of thinking you’ll be just fine on Social Security alone in retirement when in reality, that’s likely to lead to a world of financial stress and heartache.

Social Security plays a huge role in the budgets of many American retirees. About half of households with someone age 65 or older receive at least 50% of their income from Social Security. About one-quarter receive 90% of their income from the government program.

So the annual cost-of-living adjustment, or COLA, is of huge importance for many seniors. Without that bump in payments each year, many seniors would struggle to keep up with the rising costs of housing, healthcare, and groceries.

While we’re still a few months away from the official COLA announcement, history can offer some ideas of what to expect for next year. Here’s what you need to know.

How the government calculates your COLA

Congress established automatic cost-of-living adjustments for Social Security based on inflation starting in 1975.

The metric used to determine how much prices have climbed from the prior year is the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as CPI-W. The CPI-W measures the increase in the price of a theoretical basket of goods weighted for the average spending of a working-age city dweller. It includes everything from housing to groceries to clothing to recreation.

The Bureau of Labor Statistics gathers thousands of data points from all around the country every month to calculate the CPI numbers. It releases those numbers monthly, typically in the second week of the month following the survey.

The Social Security COLA is automatically determined by the average year-over-year increase in the CPI-W for the third quarter of the year. So when the Bureau of Labor Statistics releases the September CPI-W numbers in early October, the Social Security Administration is able to announce the following year’s COLA.

But considering it’s already July, we can look at recent history to get a good idea of what to expect for next year’s COLA.

What history says could be coming in 2026

If you want to figure out what next year’s COLA will be, you have to start by figuring out what inflation will look like. Luckily, we already have inflation data from the first five months of the year, which is generally the best predictor of what the inflation data will look like over the next few months.

May’s CPI-W number was 314.839. That’s a 2.2% increase from May of 2024. However, early 2024 saw a rapid increase in inflation before it cooled off in the summer. That means continued increases in inflation from month to month through the end of the summer could result in a much higher cost-of-living adjustment.

Since 1974, when Congress first enacted automatic COLAs based on inflation, the CPI-W reading has increased about 0.65% from May to July, 0.94% from May to August, and 1.3% from May to September.

That includes periods of extreme inflation like the late 1970s and early 1980s. Inflation was even worse in that period than in 2021 through 2023. The Federal Reserve has been able to keep a better handle on inflation since then, so it might make sense to remove or reduce the weight of that period in our analysis. If we look at average inflation since 1985, the increases drop to just 0.41%, 0.61%, and 0.89%, respectively.

If we use the historical average dating back to 1974, next year’s COLA will be 3% if inflation increases in line with the average. If we use the historical average since 1983, next year’s COLA will come in at 2.6%.

Both of those numbers are above recent forecasts from the Senior Citizen’s League and independent analyst Mary Johnson. Both expect a 2.5% COLA for 2026, based on their proprietary models. On the other hand, the Social Security trustees expect next year’s COLA to come in between 2.4% and 3%, with 2.7% as their intermediate assumption.

We’re still a little over a month away from getting our first data point that counts toward next year’s COLA. As we get closer, retirees will get more clarity on what to expect. But based on history and expert models, they can expect a COLA roughly in line with, or perhaps a little higher than, last year’s 2.5% increase.