Retirees face shortages despite the increase in social security in 2026
The mismatch stems from the way COLAs are calculated. Currently, the SSA bases annual increases on the Consumer Price Index for Urban Wage Earners and White-collar Workers (CPI-W), a measure designed around the spending habits of younger, urban workers.
An alternative measure, the Consumer Price Index for the Elderly (CPI-E), weighs housing, health care and utilities more heavily and would have delivered a 3.1% increase in 2026 instead of 2.8%, according to Investopedia.
COLAs based on the CPI-W have lagged each of the past three years – and by an average of 0.2% per year in 18 of the past 26 years. This has meant that retirees’ annual increases have not always kept pace with the inflation of their most common expenses.
Even with a switch to the CPI-E formula, rising Medicare costs could offset some of the gains. Newsweek reported. Medicare Part B premiums, which are expected to rise from the current level of $185 to $202.90 by 2026, continue to eat into COLA gains and outpace benefit increases.
Social security benefits have continued to lag behind inflation. While 60% of cost-of-living adjustments exceeded inflation in the 1990s and 2000s, that fell to 40% in the 2010s and to just 20% in the early 2020s – not counting the 8.7% increase in 2023 due to inflation during the pandemic.
The Senior League (TSCL) reports that retirees who started receiving benefits in 1999 have lost nearly $5,000 in lifetime payments, compared to what they would have received under CPI-E. For those retiring in 2024, the shortfall over a 25-year retirement could be more than $12,000.
TSCL also estimates that social security benefits have lost about 20% of their value since 2010. To fully restore their purchasing power, retirees would need an additional $370 per month, or $4,440 per year.
Congress has introduced two bills to close the gap, as any change in how COLA is calculated would require a change in federal law.
The Senior Benefits and COLAs Boost Act would revise how annual adjustments are calculated, while the Social Security Emergency Inflation Act would temporarily add $200 per month to benefits until July 2026.
According to Newsweek, both proposals are supported by Democratic Sens., among others. Elizabeth Warren, Kirsten Gillibrand, Ron Wyden and Chuck Schumer.
