Why Your Social Security Raise Might Not Be What You Expect and What It Means for You

Social Security's annual bump just landed. The number looks good on paper. It rarely feels that way in your wallet.

The Math That Never Adds Up

They call it a cost-of-living adjustment. You'll call it something else when your bills come due. The formula tracks inflation—or at least, a specific government-approved version of it. It's a lagging indicator, a rearview mirror on price hikes you already paid. By the time the increase hits, your grocery run has already cut deeper, your utility bill has already climbed higher.

Where Your Raise Really Goes

That extra cash doesn't just materialize. For most, it gets swallowed before it arrives. Medicare Part B premiums get their taste first, automatically deducted. Then come the stealth taxes—the income thresholds that haven't moved in decades, quietly pushing more of your benefit into taxable territory. What's left meets the new, higher prices for everything else. The net result? Stagnation in a clever disguise.

A System Playing Catch-Up

This isn't a bug; it's a decades-old feature. The adjustment mechanism is a blunt instrument in a precision economy. It can't account for regional cost disparities or the fact that seniors spend disproportionately on healthcare and housing—two sectors where inflation runs hotter than the headline rate. You're left with a one-size-fits-all raise in a world that doesn't fit anyone perfectly.

Your Next Move in a Rigged Game

Relying solely on this annual tweak is a retirement plan drafted by a pessimist. It's a government-backed promise that consistently underdelivers, the financial equivalent of being told the check is in the mail—forever. The real adjustment happens between your ears: recognizing this system as a baseline, not a solution. The proactive move? Looking beyond the traditional playbook. While the old guard tweaks formulas, a new financial architecture is being built in plain sight—one that operates on transparent, algorithmic rules rather than political whims. Now that's a cost-of-living adjustment worth getting excited about.

Key Takeaways

• Inflation, measured by the consumer price index (CPI) that older Americans actually face, has often been higher than Social Security's annual cost of living adjustment (COLA).
• This is creating a gap, which stems from the inflation measure the feds use, that erodes purchasing power.

Those on Social Security will be getting bigger checks this January—2.8% bigger. But groceries, medicine, and housing might be rising faster for older adults, about 3.1%, according to the inflation measure favored by many experts. That mismatch is perhaps why only 22% of Americans 50+ told AARP the cost of living adjustment (COLA) WOULD be enough.

A closer look at the COLAs over the past few decades shows those surveyed might be right. The inflation measure used to calculate these adjustments has habitually underestimated the price increases older Americans have seen most in recent years.

“The cost-of-living adjustment helps offset inflation, but it rarely reflects where retirees feel the most financial pressure,” Gina Seibert, chief financial officer at PSECU, told Investopedia. “Many older adults spend a larger share of their income on health care, housing, and utilities—areas that tend to rise faster than overall inflation."

Why This Matters To You

Your Social Security benefit check may be higher with each COLA increase, but if they don’t keep up with what you actually spend on housing, food, and health care, you’re still falling behind. Understanding how COLAs are calculated can help you plan and protect your income.

Why COLAs Have Been Missing the Mark

Social Security’s COLA looks like a simple equation: inflation goes up, so benefits rise to meet it. But the problem isn’t just how much inflation increases—it’s which inflation the government is measuring.

Each year, the Social Security Administration bases the COLA on the Consumer Price Index (CPI) for urban wage earners and clerical workers (CPI-W), a measure designed around the budgets of working Americans. Critics note that most Social Security recipients are neither employed nor necessarily living in urban areas, and their spending patterns differ significantly from the CPI-W population.

There are alternative measures that weight expenses differently, but none are currently used for official COLA calculations. The CPI-E ("E" for elderly), which tracks costs for people 62 and older, weights essentials like housing, healthcare, and utilities more heavily, and these tend to be areas where prices have been rising faster in recent years.

This mismatch has been quietly eroding benefits. The COLA has lagged behind the CPI-E the last three years, meaning retirees' annual raises haven't always kept pace with what their likeliest expenses are.

Over the past 25 years, the CPI-W has fallen short of the CPI-E in 18 out of 26 years, averaging 0.2% lower annually.

The Congressional Research Service estimates that if the Social Security COLA were based on the CPI-E, it would have matched or beaten the current formula in all but six years since 1986.

Related Education

The Real Costs for Older Adults

According to the Senior Citizens League (TSCL), retirees who began collecting benefits in 1999 have lost nearly $5,000 in lifetime payments compared with what they would have received under the CPI-E. For those who retired in 2024, that gap is more than $12,000 over a 25-year retirement.

This pattern underscores why the AARP and TSCL have been advocating changing the inflation measure for years: while annual COLAs sound reassuring, the method behind them can erode buying power. And with prices rising faster in categories like health care and housing, that erosion hits older Americans the hardest.

Tip

Retirees can help protect their purchasing power by tracking personal inflation, comparing it with annual expenses for health care, groceries, and housing, and then factoring those trends into savings withdrawals.

The Bottom Line

Social Security's 2.8% COLA for 2026 gives retirees a modest boost, but advocacy groups warn it falls short of what's needed. If the government used the CPI-E—a measure that tracks spending patterns for Americans 62 and older—the 2026 COLA would have been 3.1% instead. That 0.3% gap may seem small, but it compounds over time, eroding your purchasing power in retirement.

But any change to how the COLA is calculated would require a change in federal law. "If Congress continues to pass the buck on switching to the CPI-E, the problem is only going to get worse and worse," TSCL executive director Shannon Benton said in a statement. "Current retirees’ Social Security benefits will fall further behind inflation, while future retirees won’t just fall behind—they’ll start from the back."