The flawed mathematics behind your Social Security increase

Social Security beneficiaries will get larger checks next January — 2.8% larger. But prices for groceries, medicine and housing may rise faster for seniors, by about 3.1%, according to the inflation measure favored by many experts. This mismatch is probably why only 22% of Americans over 50 told AARP that a cost-of-living adjustment (COLA) would be sufficient.

A closer look at COLAs over the past few decades shows that those surveyed may be right. The measure of inflation used to calculate these adjustments typically underestimates the price increases that older Americans have experienced in recent years.

“The cost-of-living adjustment helps offset inflation, but it rarely reflects where retirees are feeling the most financial pressure,” said Gina Seibert, chief financial officer at PSECU. Investopedia. “Many seniors are spending a larger share of their income on health care, housing and utilities – areas that tend to rise faster than the overall inflation rate.”

Why COLAs lost the mark

The Social Security law seems like a simple equation: Inflation rises, and so benefits rise to meet it. But the problem lies not only in how much inflation increases, but in the type of inflation that the government measures.

Each year, the Social Security Administration COLA relies on the Consumer Price Index (CPI) for urban wage earners and clerical workers (CPI-W), a measure designed around the budgets of working Americans. Critics note that most Social Security beneficiaries do not necessarily work or live in urban areas, and that their spending patterns differ significantly from CPI-W residents.

There are alternative metrics that weight expenditures differently, but none are currently used for official COLA calculations. The Consumer Price Index for Seniors (CPI-E), which tracks costs for people 62 and older, measures basics like housing, health care and utilities the most, and these tend to be the areas where prices have risen fastest in recent years.

This mismatch has quietly eroded the benefits. COLA has lagged behind the Consumer Price Index (CPI-E) for the past three years, meaning retirees’ annual increases haven’t always kept up with their potential expenses.

Over the past 25 years, the CPI-W has been lower than the CPI-E in 18 out of 26 years, an average of 0.2% per year.

The Congressional Research Service estimates that if the Social Security budget were based on the Consumer Price Index, it would have matched or bettered the current formula in all but six years since 1986.

The true costs of seniors

According to the Senior Citizens League (TSCL), retirees who started collecting benefits in 1999 lost nearly $5,000 in lifetime payments compared to what they would have received under the Consumer Price Index (CPI-E). For those who retire in 2024, that gap is more than $12,000 over 25 years of retirement.

The pattern underscores why AARP and TSCL have been calling for changing the measure of inflation for years: While annual COLAs seem reassuring, the method behind them could erode purchasing power. And with prices rising faster in categories like health care and housing, this erosion is hitting older Americans harder.

Bottom line

Social Security’s 2.8% COLA for 2026 gives retirees a modest boost, but advocacy groups warn it falls short of what’s needed. Had the government used the Consumer Price Index (CPI-E) — a measure that tracks the spending patterns of Americans ages 62 and older — the 2026 public spending rate would have been 3.1% instead. This 0.3% gap may seem small, but it gets worse over time, eroding your purchasing power in retirement.

But any change in how COLAs are calculated would require a change in federal law. “If Congress continues to ignore the shift to the CPI-E, the problem will only get worse,” Shannon Benton, executive director of TSCL, said in a statement. “Social Security benefits for current retirees will fall further behind inflation, while future retirees will not only fall behind, but will start from behind.”