2026 Social Security COLA estimated at 2.7%. Why seniors still fall behind.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), the index used to calculate the annual adjustment to Social Security benefits, increased 2.5% in July. Overall inflation rose 2.7%, flat from June. The Federal Reserve's inflation goal is 2%.
The annual adjustment, also known as the cost-of-living-adjustment (COLA), to Social Security benefits is meant to help seniors maintain their purchasing power over the years, but that hasn't always worked, said Mary Johnson, an independent Social Security and Medicare policy analyst.
"Prices on the items that older Americans use the most remain elevated," she said. Categories that see higher levels of inflation than the overall rate include housing, medical costs, transportation and groceries.
According to the Bureau of Labor Statistics' most recent weighting for older consumers, these categories when added together comprise more than 85% of household budgets of consumers age 62 and older.
Why is July COLA estimate important?
The actual Social Security COLA estimate that the Social Security Administration typically announces in October is based on inflation data in the third quarter, or July, August and September. So July is the first month that will be considered for the 2026 COLA calculation.
Here's how COLA is calculated: CPI-W for July, August and September are averaged, and then compared against the average of the same three months in the prior year. The percentage of difference is what the Social Security Administration uses to determine the annual COLA adjustment.
CPI-W largely reflects the broad index the Labor Department releases each month, although it sometimes differs slightly. Last month, the overall consumer price index rose 2.7% and the index for urban wage earners increased 2.5%.
Social Security's future
The Social Security Office of the Chief Actuary estimates President Donald Trump's tax package moves the insolvency date for the Social Security trust fund forward by about three months from 2033 to 2032.
Part of that is due to the increase in the standard deduction for those age 65 and older from 2025 through 2028. The higher standard deduction means less overall tax liability for most Social Security beneficiaries, but it also means lower revenues received by the Social Security and Medicare Trust Funds from the taxation of benefits.
'Congressional legislators did not include any provision to replace these program funds that were formerly earmarked for the payment of current Social Security and Medicare benefits,' Johnson said.
According to Social Security Trustees, a 25.8% cut in 2034 benefits would be necessary. Johnson calculates a 25.8% reduction could cut lifetime Social Security income for beneficiaries at an average age of 65 in 2025 by $176,400 over a 25-year retirement.
How many people receive Social Security benefits?
In July, 74.36 million people received Social Security, according to the Social Security Administration. These beneficiaries include retired workers, disabled workers, survivors of deceased workers and those receiving Supplemental Security Income.
The average monthly benefit was $1,863.12 in July.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
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