First introduced in 1975, the cost-of-living adjustment (COLA) system is intended to help beneficiaries — retirees who receive Social Security, including Old-Age, Survivors, and Disability Insurance (OASDI) and Supplemental Security Income (SSI) recipients — keep up with rising prices.
According to the Social Security Administration (SSA), a 2.8% COLA will increase monthly Social Security payments by $56 on average this year. COLAs aren’t designed to increase one’s wealth, but with so many retirees struggling to make ends meet, it would be helpful if their monthly checks weren’t subject to the depreciating effects of inflation.
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Here are some ways that inflation can reduce the real value of your Social Security check.
The real impact of inflation eroding your income is best looked at over the course of years, as purchasing power normally decreases for consumer goods (with a few monthly exceptions over the past 20 years). However, cost-of-living adjustments don’t always keep up with inflation.
The COLA measures the change in the CPI-W — the Consumer Price Index for Urban Wage Earners and Clerical Workers — between the previous year’s third quarter average and the current year’s third quarter average. This could go up, as it did this past year, or remain unchanged if there is no increase or if the number rounds to zero.
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Although no one expects inflation to skyrocket monthly like it did during the pandemic, consumer prices continue to rise. And we’ve seen sharp inflation rate hikes just last year, when it rose steadily from April (2.3) to September (3.0), per Trading Economics. A yo-yoing inflation in 2026 could hurt a pensioner’s fixed savings and monthly income significantly.
More importantly, the things that retirees spend the most on, like health care and assisted housing than seniors, urban wage earners and clerical workers spend a lesser proportion of their income on. Typically, “Medical care prices and overall health spending typically outpace growth in the rest of the economy,” notes the Peterson-KFF Health System Tracker.
Back in November, the Centers for Medicare & Medicaid Services (CMS.gov) released a statement detailing, “The standard monthly premium for Medicare Part B enrollees will be $202.90 for 2026, an increase of $17.90 from $185.00 in 2025.”
Premiums are a fact of life, but according to Medicare.gov, while Social Security benefit payments can never decrease from one year to the next due to Medicare premium hikes Part B premiums are automatically deducted from your Social Security benefit payment, making a 2026 $56 benefit check closer to $38 every month.
Although the COLA system is intended to preserve purchasing power, many seniors are falling behind because of the way that the adjustment is calculated. The problem? COLA is determined using the aforementioned CPI-W, a Bureau of Labor Statistics (BLS) index that monitors working individuals in urban areas, not strictly retirees.
The Senior Citizens League argues that the CPI-W costs the average retiree thousands over the course of their retirement years. Unfortunately for Social Security beneficiaries, the better-performing CPI-E — the Consumer Price Index for the Elderly — has been recommended to Congress numerous times in the past three years, but each bill has been met with resistance.
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This article originally appeared on GOBankingRates.com: Your Social Security Check Increased by About $56 This Year — Here’s How Much Inflation Has Already Eaten Away
