What COLA Really Means

COLA, or Cost of Living Adjustment, became automatic in 1975 to ensure Social Security benefits weren’t subject to political wrangling. It’s calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), comparing third-quarter prices from one year to the next.

In plain terms, COLA is how the government tries to make sure your Social Security check doesn’t lose value when groceries, gas, and utilities go up.

How Your Benefit Is Calculated

Your monthly Social Security benefit known as your Primary Insurance Amount (PIA) is based on your highest 35 years of earnings, adjusted for inflation. A formula applies three “bend points” (90%, 32%, and 15%) to your Average Indexed Monthly Earnings (AIME).

For example, someone with $2.1 million in lifetime earnings across 35 years would have an AIME of about $5,000. Their benefit at full retirement age would be around $2,311 per month.

Your claiming age matters too. Taking benefits early (age 62) permanently reduces your check, while delaying until age 70 can boost it by as much as 32%.

What to Expect in 2026

Recent COLAs were among the highest in decades 8.7% in 2023, 3.2% in 2024, and 2.5% in 2025 reflecting the wave of inflation we’ve all felt. For 2026, the Senior Citizens League projects a 2.6% COLA, though the official figure won’t be finalized until October 2025.

That’s modest compared to the pandemic-era surge but still valuable in maintaining buying power.

Medicare Costs Will Eat Into Gains

Here’s where the challenge comes in: rising Medicare premiums and deductibles are expected to absorb much of the COLA increase.

• Medicare Part B base premium: projected to jump from $185 in 2025 to $265 in 2026
• Part B deductible: expected to rise from $257 in 2025 to around $285–$288 in 2026
• Part D drug deductible: increasing from $590 in 2025 to $615 in 2026
• Catastrophic coverage cap: rising from $2,000 to $2,100

For many seniors, the “raise” from COLA may be largely offset by these higher healthcare costs.

Why Financial Planning Matters

Social Security was never intended to cover all of a retiree’s expenses it was designed as a supplemental income source. With longer life expectancies and rising medical costs, planning ahead is more important than ever.

Relying on COLA alone won’t guarantee stability. Additional income sources like pensions, retirement accounts, and personal savings are key to maintaining quality of life.

Practical Steps for Seniors

1. Check your benefits: Use the Social Security Administration’s website (ssa.gov) to review your projected benefits.
2. Factor in Medicare: Don’t overlook how premium increases will impact your net Social Security income.
3. Diversify income sources: Build retirement income through savings, IRAs, or annuities to reduce reliance on Social Security alone.
4. Get expert guidance: Services like MedicareSchool.com can help seniors compare Medicare options and plan around rising costs.

The Bottom Line

The projected 2026 COLA of 2.6% is good news, but rising Medicare premiums and deductibles will absorb much of the increase. Retirees need to see COLA as one piece of the puzzle, not the entire plan. With smart financial strategies, you can ensure that your retirement income stretches further even when healthcare costs rise faster than your Social Security check.

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