This is exactly how your Social Security COLA for 2026 will be determined

If you’re collecting Social Security, there’s a good chance you already know that you receive a cost-of-living adjustment (COLA) in most years. However, you may not know the specific details of how this adjustment to your benefits works.

Since this benefit increase is critical to helping you maintain your earning power in retirement, it’s helpful to know how COLA is calculated. This knowledge will allow you to estimate the amount you will receive each year and understand why the COLA may not meet your expectations.

The COLA is sometimes called the Social Security increase, but that doesn’t quite capture its purpose. COLAs are intended to help your benefits keep up with inflation. As a result, the COLA formula is based on a specific measure of inflation and provides a benefit increase only if inflation occurs.

The Bureau of Labor Statistics (BLS) plays an important role in this process. The BLS maintains different consumer price indices that track the prices of goods and services. The price index used in COLA calculations is called the Consumer Price Index for Urban Wage Earners and Administrative Workers (CPI-W).

The Social Security Administration analyzes year-over-year changes in the CPI-W. It does so specifically for data from the third quarter of the year (the months of July, August and September). The COLA equals the percentage increase in the average CPI-W during this critical three-month period.

Typically, September data is available in mid-October, so the COLA announcement is made then. However, as a result of the government shutdown, data collection was delayed and September CPI-W figures will not be released until October 24, 2025. At that time, it will be possible to measure how much the average third-quarter CPI-W reading has increased compared to the same period last year, and the resulting change will determine how large the COLA will be for retirees.

While using a consumer price index to measure inflation and provide COLAs makes sense for Social Security beneficiaries, there is a major flaw in the current methodology. The problem is that the consumer price index chosen for the calculation measures the spending habits of a different group than older people: urban wage earners and white-collar workers.

These people tend to spend differently than retirees, dedicating less money to critical areas like housing and healthcare, where industry-specific inflation tends to be higher than general inflation. The end result is a COLA that often does not adequately represent the price increases retirees face each year.

This has led to the purchasing power of benefits declining over time, leaving many retirees more dependent on their retirement plans as their benefits buy less and less each year. Of course, retirees should be careful not to withdraw from their 401(k) or other retirement plans too quickly.

Possible solutions to this problem have been suggested, including switching to a consumer price index for seniors. Although it exists, it is an experimental index with methodological limits, and The change would also further worsen Social Security’s precarious financial situation.

So for now, changes to the CPI-W remain the key factor that determines the size of any COLA. Retirees just have to wait until this figure is released at the end of October to see what their budgets will look like next year.

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little known “Secrets of Social Security” could help ensure an increase in your retirement income.

A simple trick could generate up to $23,760 further…every year! Once you learn how to maximize your Social Security benefits, we believe you’ll be able to retire with confidence and the peace of mind we’re all looking for. Join Stock Advisor to learn more about these strategies.

See the “Secrets of Social Security” »

The Motley Fool has a disclosure policy.

Here’s Exactly How Your 2026 Social Security COLA Will Be Determined was originally published by The Motley Fool