2026 Social Security COLA: Why the 2.8% Raise Isn’t Enough

The Social Security Administration has announced a 2.8% 2026 Social Security COLA. This means about 75 million Americans will see their benefits rise starting in January. 

On paper, that sounds like a decent raise. The average retired worker’s check will go from about $2,015 to roughly $2,071 a month. That's a bump of about $56.

But if you look under the hood, most of us retirees will find that this increase doesn’t keep up with what it actually costs to live.

Inflation, whether you believe the government's numbers or you think Shadowstats better reflects reality, is still outpacing your "raise".

That means every extra dollar of income you can create on top of Social Security is not just “nice to have.” It is getting more valuable and more critical every year.

Let’s talk about why.

The COLA formula is based on the CPI-W. That's an inflation measure for urban wage earners and clerical workers. Social Security looks at the average CPI-W for July, August and September, compares it to the same period a year earlier, and that percentage becomes the COLA.

For 2026, that math produced a 2.8% increase.

Using Social Security’s own examples:

Average retired worker

Before COLA: $2,015

After 2.8% COLA: $2,071

Monthly increase: about $56

If your benefit is higher or lower, the dollar increase changes, but the principle is the same. You are getting a raise that is supposed to “keep you whole” against inflation.

Key phrase: “supposed to.”

Chart courtesy of Shadowstats.com

Now look at the official inflation numbers. The Consumer Price Index (CPI-U), which covers a broader slice of the population than CPI-W, shows prices rising about 3.0% over the 12 months ending in September 2025. The CPI-W over the same period rose 2.9%.

You also see full-year CPI estimates for 2025 sitting in the high-2s, around 2.7% to 3.0%.

So here is the simple problem:

Official inflation is running roughly 3% year-over-year.

The COLA for 2026 is 2.8%.

That gap is not huge in a single year, but it is still a gap.

Let’s put it in dollars. Take that average $2,015 benefit:

A true 3.0% inflation rate means your cost of living went up by about $60 a month.

Your actual COLA raises your check by about $56.

You are roughly $4 a month short of keeping up. That is almost $50 a year in lost purchasing power, even using the government’s own numbers.

Now stretch that out over a decade of “little” gaps, and you start to see why so many of us feel squeezed even when COLAs keep coming.

But wait. There's more. 

Medicare Part B premiums are set to jump about 10% in 2026, from $185 to $202.90 a month. That increase of $17.90 eats up roughly one-third of the average $56 COLA before it even hits your checking account.

So if you are the “average” retiree:

COLA adds about $56 to your monthly benefit.

Medicare Part B takes back about $18 of that.

You're left with maybe $38 in real extra cash before you even talk about higher grocery bills, rent, property taxes, insurance, utilities or that surprise car repair.

This is why, even by official measures, a lot of folks are saying, “I got a raise, but it feels like a lower.”

Now let’s talk about ShadowStats.

You see, the government has changed how they measure inflation over the years so they can report a lower inflation number.

Over time, the official CPI has been adjusted with things like “substitution” (assuming you switch to cheaper goods when prices rise) and “hedonic” adjustments (saying you are getting more value from a product, so the effective price increase is smaller).

Those changes tend to push reported inflation down. B.S. in - B.S. out.

ShadowStats tries to reconstruct inflation using the CPI methodologies the government used to use.  Particularly the approaches used before the early 1990s and, in some series, back to the 1980s.

ShadowStats says: “What if we calculate inflation the old way, like we did before those changes?”

If you look at their charts, the alternate CPI line is usually several percentage points higher than the official CPI. 

When official CPI is around 3%, ShadowStats’ alternate inflation often sits closer to the high single digits. The exact numbers move month to month and their data is proprietary, but the general pattern is that “real life” inflation in their view is far above the 2.8% COLA.

Not everyone agrees with their approach. Economists in the mainstream point out that their series is not transparent enough to fully verify and argue that their results are unrealistically high.

That said, ask yourself a simple, non-technical question:

Does your personal experience feel closer to “3% inflation”

Or does it feel like your real cost of living is going up a lot faster than that?

For a lot of folks I talk to, housing, healthcare, food and insurance have moved far more than 3% a year over the last decade. That "lived experience" lines up more with the idea that “true” inflation is higher than what the headline CPI suggests and the government admits.

Let’s go back to that average monthly benefit of $2,015. We already saw the numbers if inflation is actually 3%:

Now imagine your real cost of living is closer to 6% higher, which is the kind of gap alternative measures like ShadowStats often imply when official CPI is in the 2%–3% range.

That is more than $770 a year that your Social Security check is not covering.

Give that ten years to compound and it becomes a serious problem. Your check keeps going up, but your lifestyle keeps shrinking. You cut back on eating out, then on travel, then on home repairs, then on giving. At some point you are no longer cutting “wants.” You are cutting into what used to be basic, normal life.

If Social Security were really keeping up with inflation, your job in retirement would be relatively simple. You would still need savings and maybe some investment income, but your base check would be stable in real terms.

That is not what is happening.

Instead, we have a system where:

Put all of that together and Social Security becomes a shrinking foundation. It is not vanishing, but its ability to support you is eroding little by little.

That changes the math on “extra income.”

A few thousand dollars a year of additional, dependable cash flow is far more powerful in this environment than most people realize. It is not just “play money” for vacations. It can be the margin that:

Every dollar of new cash flow is doing double duty. 

It is supporting your present lifestyle and helping you delay or reduce how much you pull from your savings. That can make your nest egg last much longer.

Here is how I think about it, both for me and for the guys I try to help who are 50-plus and looking at retirement with a knot in their stomach:

1. Treat Social Security as a base, not a complete solution

Expect that it will slowly fall behind your real cost of living. Plan on that. If you end up pleasantly surprised, great. But do not build a plan that assumes COLA will fully protect you.

2. Pay attention to your personal inflation rate

Your mix of expenses matters more than the headline CPI number. If your world is heavy on healthcare, rent, insurance and food, your true inflation rate is probably higher than 3%. Track your own spending for a few months and see what has actually changed.

3. Focus on building dependable extra income, not just a bigger pile

Saving and investing are important, but at this stage of life cash flow is the real security. A modest home business, part-time consulting, affiliate or network marketing, or some other income stream can be the difference between “just scraping by” and “breathing easy.”

4. Think in terms of filling the gap, not replacing everything

If your personal numbers say you are short $500 a month, then the target is not “millions in the bank.” The target is an extra $500 to $1,000 a month of reasonably stable income. That is a much more realistic and motivating goal. Millions can come later, if you want.

A 2.8% COLA sounds pretty good on paper. 

But when you compare it to inflation, either the government's version or Shadowstats' it does not look nearly as impressive. 

Between under-measured inflation and rising Medicare premiums, your Social Security income keeps losing a little ground each year.

We don't control how Washington calculates CPI or sets COLA. 

What we do control is how we respond.

For me, the takeaway is simple:

If you are feeling that same pressure, now is the time to get serious about creating your own cash flow. Not someday, but before the next COLA announcement reminds you that the system isn't designed to save your retirement.