Every year, the Social Security Administration releases the new cost-of-living adjustment (COLA) index for Social Security claimants. This statistic boosts the benefits for recipients by allowing them to maintain the same purchasing power with their payments despite inflation and rising costs. While the new COLA for the following year is typically released in October of the current year, the Senior Citizens League is already projecting what the new 2026 COLA would be.
How is the COLA computed annually?
The COLA statistic is generated using the Bureau of Labor Statistics’ annual Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W monitors price changes in specific expenses that workers face. It monitors changes in common expenses purchased by urban workers and forecasts how prices will change as a result.
This statistic is then applied to SSA benefits via the COLA statistic to guarantee that beneficiaries maintain purchasing power with their benefits. However, utilizing the CPI-W to inform COLA has been criticized in the past. First and foremost, it is a retroactive statistic, which means that the increase for the new year is dependent on price changes from the prior year. As a result, this modification may not be fully beneficial for the current year, when price fluctuations may differ significantly from the previous year.
In addition, the CPI-W is based on the consumer purchasing habits of working people. This means that COLA obtains an erroneous depiction of what is applicable for changing expenses affecting older adults, who account for the vast bulk of COLA beneficiaries. Senior persons’ spending patterns differ from those of employed people, notably in terms of medical expenses.
How will the 2026 COLA benefit this group?
According to the Senior Citizens League, next year’s COLA is expected to be 2.4%. This would be the lowest COLA since before COVID, indicating that inflation is falling and prices are stabilizing. While it may appear contradictory to want a lower rise, beneficiaries must realize that the bigger the COLA increase, the more price volatility occurs.
COLA is not limited to retirement SSA pensioners. The statistic also affects VA disability compensation beneficiaries. According to the SSA website, these benefits are also administered by the SSA and are intended for the following beneficiaries:
“The VA pays disability compensation to veterans who have a service-connected disability resulting from a condition that was incurred during or aggravated by active military service,” the Social Security Administration states.
These benefits differ from Social Security disability benefits, and persons who have served in the military and sustained a service-related disability may be eligible for both payments. Veterans are among the most vulnerable members of society, with a higher risk of mental health issues and economic difficulties.
How do recipients supplement their income?
Despite the fact that the most recent COLA prediction for 2026 indicates a solid economy, many recipients are concerned that they will continue to struggle to keep up with rising living costs. To accommodate for this, both present and prospective recipients should consider measures to boost their retirement benefits. Beneficiaries require numerous sources of income to ensure financial stability.
Starting to invest can help you boost your benefits and diversify your retirement portfolio. By using the power of compound interest over time, you can build a strong and comprehensive investment portfolio that will provide you with various sources of income rather than relying solely on your SSA payments. Even a small sum invested each year goes a long way when you consider how this money will increase over time if left alone.