Social Security Benefits Receive a 2.5% COLA in 2025. Will COLA be higher or lower in 2026?

Because so many people rely on Social Security to make ends meet in retirement, the program’s annual cost of living adjustments (COLAs) are an important piece of the puzzle. The purpose of Social Security’s COLA is to ensure that older adults do not lose purchasing power over time as inflation raises the cost of living.

Social Security’s COLAs have been especially generous in recent years. This year’s COLA rate of 3.2% was higher than the average over the past decade, and the 8.7% COLA rate in 2023 was a record.

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But in 2025, Social Security benefits will be will grow by only 2.5% due to cooling inflation. While this is not a terrible increase, it is disappointing in the context of recent COLA agreements, which have been much more generous.

But as upset as seniors may be about the 2.5% COLA, chances are the 2026 Social Security increase will be even lower. And this is exactly what beneficiaries should prepare for now.

Why the news might not be so good in 2026

Without a crystal ball, it’s difficult to predict what the coming year will look like from an economic perspective. But what are we do It is known that inflation has been steadily declining throughout the year. And there is a high probability that this will continue in 2025.

The Fed appears fairly confident that inflation is also trending downward. At its meeting in mid-September, it cut the benchmark interest rate by half a percentage point. Further rate cuts are expected in the near future.

Slowing inflation has the potential to benefit more than just older people. Social Securitybut also for consumers in general. But if inflation continues to decline in the new year, it could push Social Security’s COLA to even less than 2.5% in 2026.

Don’t Rely Too Much on Social Security’s COLA

One could argue that a smaller Social Security COLA is not a bad thing since it is a sign that inflation is falling. But in reality, many older adults have a hard time seeing things this way, especially since Social Security’s COLAs were passed. could not cope with inflation for a long time.

So it’s best to take steps to become less dependent on Social Security’s COLA over time. If you are already retired and therefore cannot go back in time and accumulate pension savingsTry supplementing your income with a part-time job or a side hustle. The latter may seem extremely flexible to you.

Working can also give you something to do during the week that won’t cost you money. This makes it easier to increase limited income.

And if you haven’t retired yet, consider this a wake-up call to accumulate as much savings as possible so you don’t have to worry about Social Security’s COLA year after year once you stop working. Even modest savings can provide a cushion so that if there’s a year when Social Security benefits barely increase, you won’t be left in the lurch.

Even if you can only save $100 a month for retirement, if you do it for 30 years and get an average annual return of 8% on your portfolio, that’s a bit lower stock market averageyou’re looking at $136,000.

Saving more would obviously be optimal. But if not, it still gives you a modest amount of money to fall back on when Social Security’s COLA inevitably falls short.

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