After weeks of anticipation and a two-week delay, the Social Security Administration has announced the cost-of-living adjustment (COLA) for 2026. Beginning in January, recipients will see a 2.8 percent increase in their monthly benefit payments.
This yearly adjustment is meant to help seniors keep up with inflation—but how exactly is it calculated, and what will it really mean for next year’s Social Security checks?
How Is COLA Determined?
The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a Bureau of Labor Statistics measure that tracks changes in the cost of goods and services purchased by workers. Although CPI-W is calculated monthly, Social Security only uses the figures from July, August, and September to determine the next year’s adjustment.
The agency averages those three months’ data and compares it to the same period from the previous year. If the number is higher, the percentage increase becomes the new COLA. If the current year’s figure is lower, the COLA is set at zero—since benefits cannot decrease. This has happened three times in recent memory: 2010, 2011, and 2016.
It’s also important to note that while the COLA is announced in October, it is not applied until the first benefit payment of the following year.
Historical Context
Automatic COLAs began in 1975; before then, benefit increases required an act of Congress. Since that time, the average annual adjustment has been 3.7 percent, though that figure is skewed by a few high-inflation years—such as 1979 (9.9%), 1980 (14.3%), 1981 (11.2%), and 2022 (8.7%). Excluding those outliers, the historical average drops to 3.1 percent.
This year’s 2.8 percent increase is therefore below the long-term average but in line with more recent inflation trends.
The Medicare Connection
While the COLA announcement specifically affects Social Security, Medicare premiums play a crucial role in determining how much of that increase seniors actually see in their bank accounts. That’s because most beneficiaries have their Medicare Part B premiums deducted directly from their Social Security payments.
Medicare is divided into two parts: Part A (hospital coverage) and Part B (outpatient services). There is no premium for Part A for those eligible for Social Security, but Part B requires a monthly premium paid by all enrollees.
Each year, Medicare recalculates the Part B premium based on projected program costs. The federal government covers 75 percent of those costs, while the remaining 25 percent is split among beneficiaries. For 2026, that calculation results in a Part B premium of $206.50 per month, up from $185 in 2025—an increase of $21.50.
What That Means for Your Monthly Payment
Because the Medicare premium comes out of each person’s Social Security benefit, a good portion of the COLA increase will be offset. For the average beneficiary, the 2.8 percent COLA translates to about a $54 monthly increase, but after subtracting the higher Medicare premium, the net gain is closer to $32.50 per month. In other words, the effective increase in take-home Social Security income will be around 1.6 percent.
This impact can vary depending on individual benefit amounts. For someone with a smaller Social Security payment, the Medicare premium hike may even exceed their COLA increase. Fortunately, there is a safeguard for that.
The “Hold Harmless” Provision
The hold harmless provision ensures that a beneficiary’s net Social Security payment cannot decrease because of a rise in Medicare premiums. If a person’s COLA increase is smaller than the Medicare premium hike, the law requires that their Part B premium be reduced so that their overall benefit does not go down.
For example, someone receiving $500 per month in Social Security would see a $13.50 COLA increase, which is less than the $21.50 increase in the Medicare Part B premium. Under hold harmless, their premium would be adjusted down to $198.50 instead of $206.50, keeping their net payment level.
However, not everyone qualifies for this protection.
When “Hold Harmless” Doesn’t Apply
Several situations make a beneficiary ineligible for the hold harmless provision:
- If the individual experiences any change in their Social Security benefit amount, such as switching from their own retirement benefit to a higher spousal benefit.
- If the beneficiary is subject to IRMAA (Income-Related Monthly Adjustment Amount), which applies higher Medicare premiums to people with higher taxable income—from sources like 401(k) withdrawals, property sales, or required minimum distributions.
- If the person is enrolling in Medicare Part B for the first time.
- If they pay their Medicare premium directly rather than having it deducted from their Social Security check (for instance, those not yet drawing benefits).
Are COLAs Keeping Up with Inflation?
Between 2000 and 2024, the average annual COLA was 2.6 percent, but there were four years when the adjustment was zero or below one percent. During that period, the costs faced by seniors have grown far faster than benefits, leading to a 36 percent loss in purchasing power, according to The Senior Citizens League (TSCL).
TSCL’s research shows that for nearly three-quarters of America’s seniors, Social Security represents more than half of their total retirement income. About 10 percent of retirement-age Americans live in poverty, meaning even modest differences in COLA calculations can significantly affect their ability to keep up with expenses.
That concern has sparked growing interest in revising the formula used to determine COLAs. TSCL has proposed adopting the Consumer Price Index for the Elderly (CPI-E)—a specialized measure that better reflects older Americans’ spending patterns, particularly on healthcare and housing. However, the Bureau of Labor Statistics has cautioned that the CPI-E is still experimental and has several methodological limitations that prevent its full implementation.
The Bottom Line
While the 2.8 percent COLA provides a modest increase for Social Security recipients, rising Medicare premiums will eat into much of that gain. Many seniors will see only a small net improvement in their monthly payments, and some will rely on the hold harmless provision to keep from losing ground.
With purchasing power steadily eroding over the past two decades, it’s clear that the current COLA process—though automatic and predictable—may not be enough to keep pace with the real-world inflation faced by America’s retirees.
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