As nearly 70 million Americans rely on monthly payments from the Social Security Administration (SSA), any changes to benefits — especially through cost-of-living adjustments (COLA) — are closely watched. While these annual increases are designed to keep up with inflation, many seniors argue they fall short of the rising costs they face daily.
Now, new COLA projections for 2026 are beginning to take shape following the release of the May 2025 inflation report from the Bureau of Labor Statistics (BLS). Unfortunately, for millions of retirees, the news is less than encouraging.
Understanding COLA: What It Means and How It’s Calculated
Every year, the SSA determines a COLA increase based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index tracks the cost of goods and services but reflects the spending habits of younger, employed workers — not retirees.
For 2025, the COLA was 2.5%, helping beneficiaries partially offset inflation. But retirees and advocacy groups like The Senior Citizens League (TSCL) argue that this method consistently underrepresents the real inflation retirees face — particularly in healthcare, housing, and food.
Early 2026 COLA Projection: Just 2.4%
According to TSCL’s analysis based on the May inflation report, the projected 2026 COLA is just 2.4% — which, if confirmed, would be the lowest increase in five years.
| Year | COLA Percentage |
|---|---|
| 2022 | 5.9% |
| 2023 | 8.7% |
| 2024 | 3.2% |
| 2025 | 2.5% |
| 2026* | 2.4% (projected) |
“This year will be a closer year to watch because of the tariffs,” said Mary Johnson, a Social Security and Medicare analyst, referencing Trump-era tariff policies that could increase inflationary pressure on goods and services important to retirees.
While a lower COLA might suggest a healthier economy, many SSA recipients are not feeling the benefit. Since 2010, Social Security’s buying power has dropped by an estimated 20%, according to TSCL.
The Disconnect Between COLA and Seniors’ Real Needs
The primary criticism of COLA is that it fails to adequately reflect senior spending patterns. The CPI-W does not weigh medical costs, prescription drugs, home heating, or long-term care as heavily as retirees do in real life.
That gap leaves many seniors falling behind — even in “low-inflation” years — as fixed benefits struggle to match rising out-of-pocket expenses.
A Push for Reform: Tax Relief for SSA Recipients
As COLA projections drop, a new effort is emerging from Congress to relieve financial pressure on seniors through tax reforms. Currently, nearly 50% of Social Security beneficiaries pay federal income tax on their benefits — a system that was originally intended to apply only to high earners.
However, income thresholds for taxation haven’t been adjusted since 1984, meaning more seniors are taxed today than ever before — even those with modest incomes.
New Tax Break Proposal:
The House of Representatives has introduced legislation that would provide a $4,000 annual tax deduction for qualifying Social Security recipients starting in 2025 and continuing through 2028.
| Eligibility Criteria | Benefit |
|---|---|
| Age 65+ | Up to $4,000 tax deduction |
| Income below $75,000 | Full deduction eligible |
| Phase-out begins above $75,000 | 4% reduction per $1,000 above limit |
While this isn’t the full tax elimination that former President Trump previously supported, it marks a significant shift toward easing the tax burden for low- to middle-income seniors.
When Will the Official 2026 COLA Be Announced?
The official COLA announcement for 2026 will be made by the SSA in October 2025 after evaluating third-quarter CPI-W data (July–September). Until then, all figures remain projections, though TSCL’s track record of forecasting has been historically accurate within a narrow range.
With a projected 2.4% COLA increase in 2026, Social Security beneficiaries may be bracing for another year where incomes fail to keep pace with expenses. Though the broader economic indicators may suggest stability, seniors on fixed incomes are still struggling, especially with housing, healthcare, and food prices remaining elevated.
Relief may come in the form of new tax breaks, offering as much as $4,000 in annual deductions for qualifying recipients. Still, advocates argue that more structural reforms are needed to truly protect retirees and restore Social Security’s original promise: a secure and dignified retirement.
FAQs
What is COLA and how is it calculated?
COLA (Cost-of-Living Adjustment) is based on the CPI-W index, which tracks inflation. It’s used by the SSA to determine annual payment increases.
Why is the COLA projection so low for 2026?
It reflects moderating inflation, but many argue it doesn’t accurately reflect seniors’ expenses, especially for healthcare and housing.
Will Social Security be taxed in 2025?
Yes — but a $4,000 tax deduction has been proposed for eligible seniors starting next year.
What’s the current average Social Security benefit?
As of 2025, the average monthly benefit for retired workers is around $1,915.