Social Security is supposed to be a lifeline for retirees to help seniors have some financial security once their paychecks stop. While benefits are not supposed to be the sole source of income for older Americans, they are supposed to be an important income source that helps retirees afford essential expenses.
Unfortunately, benefits are not providing the buying power that retirees need and deserve. In fact, Nationwide Retirement Institute’s 2025 Social Security Survey revealed that over 50% of people who are currently collecting Social Security benefits have been forced to cut back on their living expenses because prices are going up faster than their benefits.
This is not supposed to happen. In fact, Cost of Living Adjustments (COLAs) are specifically built into Social Security to prevent this exact scenario from occurring. Unfortunately, the COLA formula is failing seniors badly in 2026, and retirees are paying the price.
The COLA formula is a huge Social Security problem
First things first. To understand how the COLA is failing seniors in 2026, it’s important to understand what Cost of Living Adjustments are and how they are calculated.
COLAs provide automatic benefit increases when a consumer price index shows that prices have increased year over year. Specifically, the Social Security Administration looks at the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and compares how costs have gone up year-over-year. The Social Security Administration focuses on third-quarter CPI-W data, and retirees get a benefits increase equal to the percentage increase in CPI-W from one year to the next.
In 2026, this formula resulted in retirees getting a 2.8% COLA. In some years, the COLA has been larger, and in others, it has been smaller. The purpose every year, though, is to make sure that benefits do not lose buying power as prices increase over time. If benefits stayed the same, natural price increases that happen each year would erode their real value, and retirees would be able to afford less and less.
Unfortunately, the COLA formula is not accurately measuring the inflation retirees experience, and this has caused retirees to face mounting financial pressure — especially in the post-COVID era when inflation has been hitting the highest levels in decades.
Here’s what’s wrong with the Social Security COLA formula
The problem with the COLA formula is a simple one, with big consequences. CPI-W measures price increases on a basket of goods and services designed to mimic the spending habits of urban wage earners and clerical workers. It doesn’t match the spending habits of seniors.
Retirees tend to spend a lot more of their money on things like healthcare and housing. These are the very areas where inflation tends to be higher than overall inflation — sometimes considerably higher. Since these expensive categories are underweighted in the CPI-W formula, COLAs turn out to be smaller raises than they should.
This has had a devastating impact over many years of COLAs that are too small. The Senior Citizens League has calculated that benefits have lost around 20% of their buying power since 2010, while one survey of retirees found that seniors thought their 2025 raise fell short. While the raise this year was 2.5%, a TSCL survey revealed that 80% of seniors thought inflation was 3% or higher based on their lived experiences.
Unfortunately, the COLA formula is probably not going to change in seniors’ favor any time soon, especially since Social Security is already facing financial shortfalls that could lead to automatic benefit cuts as soon as 2035. A change in the COLA that would result in faster benefits increases would only serve to make this situation worse.
Since COLAs are failing seniors, retirees need to be aware of and plan for this harsh reality. This means saving aggressively to supplement Social Security and potentially working with a financial advisor for help in setting a budget that works, even as buying power is falling.
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