Social Security COLA Set at 2.8% for 2026

Annual COLAs are based on year-over-year changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) during the third quarter of the year.

The CPI-W measures price trends for a market basket of goods and services, such as food, clothing, housing and transportation. It’s a subset of the overall Consumer Price Index, the federal government’s main gauge of inflation.

In 2025, the CPI-W rose by 2.9 percent in September, 2.8 percent in August and 2.5 percent in July, compared with the previous year, according to data from the federal Bureau of Labor Statistics.

Because one year’s COLA reflects the prior year’s price trends, there can be a delay in the impact on retirees’ bank accounts. For example, 2022’s 5.9 percent increase was outpaced by that year’s inflation, which reached 9 percent. That resulted in an 8.7 percent COLA for 2023, a year when inflation ebbed to 3.4 percent by December.

So, if the inflation rate next year dips below the 2.8 percent COLA level, the COLA goes further to protect beneficiaries’ buying power in 2026. However, some economists expect inflation to keep inching up, driven in part by higher tariffs on imported goods.

The Supreme Court has agreed to hear a case challenging the legality of the tariffs imposed by President Donald Trump. If the tariffs remain in place, that could have an impact on prices for a wide range of goods, from cars to home construction to toys.

Already, price increases caused by tariffs are “beginning to show up more noticeably” in the economy, says Gary Schlossberg, a global strategist with the Wells Fargo Investment Institute.

The Federal Reserve’s Survey of Professional Forecasters is projecting that the main Consumer Price Index will rise by 2.6 percent through the first half of next year. ​​

Housing, utility and insurance costs bite

​​For some goods and services, such as housing and insurance, prices have risen at a faster clip than overall inflation, putting a financial squeeze on older adults who rely primarily on Social Security for their retirement income.

For example, the insurance marketplace Insurify projected in June that homeowner’s insurance costs will climb 8 percent this year, compared with 2024 rates, and tariffs could add another three percentage points to that hike because premiums reflect the rising cost of materials used for rebuilding.

“Rising home insurance costs are particularly hard on older adults, who are often out of the workforce and don’t have a path to increase their income,” says Matt Brannon, a data journalist at Insurify.  “Many older homeowners paid off their mortgages in an effort to stabilize their housing costs and now find their home insurance premiums rising rapidly, especially if they live in a disaster-prone area.”

Haverfield, the Florida retiree, says her homeowner’s insurance has climbed to more than $4,000 a year, and utility bills are often $300-plus a month. She has “nothing, zero” left at the end of each month.

“God forbid something happens,” such as a major appliance needs to be replaced or repaired, she says. “You pay it by robbing Peter to pay Paul.”

COLA gains can also be offset in part by increases in premiums for Medicare Part B, which covers outpatient services such as doctor visits. For most Part B participants, premiums are deducted directly from their Social Security payments.

The standard Part B monthly premium is projected to jump $21.50 in 2026, or 11.6 percent, to $206.50,  according to the Medicare trustees’ report issued in July.

Schlossberg notes that older adults spend a larger share of their income on housing and medical care than other age groups. “Inflation for both has been running higher than the overall inflation rate,” he says. So, if older adults feel the impact of high prices more intensely, “there is something to that.” ​​

Funding shortfall on the horizon?

​​Social Security is mostly funded through a payroll tax of 12.4 percent on eligible wages. Employers and employees each pay 6.2 percent. Self-employed people pay the full 12.4 percent.

The tax is applied to earnings up to a certain threshold, which will increase next year from $176,100 to $184,500. That revenue goes toward Social Security payments for current beneficiaries, with any excess funneled into two trust funds — one for retirement and survivor benefits, the other for disability benefits.

The funds had combined cash reserves of about $2.7 trillion at the end of 2024. But in recent years, outlays for benefits have exceeded incoming tax revenue. That means the SSA has had to tap the trust fund reserves to fully cover scheduled benefits.

In their 2025 annual report, Social Security’s trustees project that the trust funds will run short by 2034 and the program will be able to pay only 81 percent of scheduled benefits unless Congress acts to stabilize the system’s finances.

“At AARP, we’re committed to working on a bipartisan basis to ensure Social Security can deliver on its promise of financial security for the years to come,” Minter-Jordan said in her statement. “Americans have earned their Social Security over years of hard work, and AARP will fight to ensure people everywhere can keep what they’ve earned.”