Here’s what retirees need to know

The numbers are in: Retirees receiving Social Security benefits will see their monthly checks increase by 2.8% in January 2026.

The Social Security Administration has just issued the Cost of Living Adjustment (COLA), which aims to reduce the impact of inflation on Social Security beneficiaries. As of August 2025, the average monthly benefit for retired workers is $2,008, so the 2.8% rate would result in an additional $56 per month for retirees.

COLA is linked to the Consumer Price Index for Urban Wage and Clerical Workers, or CPI-W. The SSA calculates COLA by averaging the Consumer Price Index (CPI-W) for July, August, and September of the previous year and then the same period in the current year. It then measures the percentage change between these two periods.

Colin Slabach, a clinical assistant professor at New York University’s School of Professional Studies, points out that because COLA is tied to the Consumer Price Index (CPI-W) — which tracks the spending habits of urban workers — it may not reflect the price increases that individual retirees receive. The Consumer Price Index (CPI-W) was 2.9% in September 2025.

Slabach suggests that the Consumer Price Index (CPI-E) would be a better indicator for determining COLA, because it is based on the spending habits of those 62 and older, who typically spend more on expenses like medical care.

“It is important to realize that the historical difference between the two has been small, with the CPI-E slightly exceeding the CPI-W,” Slabach said. “However, many people, myself included, believe this will change as Medicare begins to rapidly outpace college tuition. This could create a situation in 10 years where seniors experience a significant decline in real dollars in their spending ability because the Consumer Price Index (CPI-W) does not accurately reflect their spending habits.”

While COLAs may provide retirees with some protection against inflation, they may not completely keep up with inflation.

A study by the Center for Retirement Research (CRR) at Boston College found that retirees, in particular, were vulnerable to the negative effects of inflation, because they were no longer working and did not benefit from wage gains caused by inflation.

Additionally, for retirees who rely on Medicare for health insurance, increases in monthly Medicare premiums may erode some COLA benefits.

In fact, the Centers for Medicare & Medicaid Services projects that monthly premiums for Medicare Part B will increase more than 11% next year, rising more than $20, from $185 to $206.

However, there are actions retirees can take to try to limit the corrosive force that inflation has on their balance sheets.

“Retirees tend to invest more conservatively in fixed income products that lose value during inflation,” researchers at CRR wrote in the report. “For example – to the greatest extent possible – they can reinvest assets held in fixed income when inflation hits, rather than making withdrawals that result in large losses.”

Likewise, Bill Shafransky, a senior wealth advisor at MONECO Advisor, suggests that retirees refrain from building their investment portfolios. Very conservative.

“Cut some out of your investment portfolio and add more equity exposure to give you the ability to keep up with or beat inflation,” Shafransky said. “You may see more volatility given higher exposure to stocks, but the data shows that the average annual rate of return over time has brought purchasing power back into your lap.”