retirees
Unsplash

As 2026 approaches, millions of retirees are watching one number: the next Cost-of-Living Adjustment (COLA). But this isn't a simple celebration. The annual adjustment is meant to be a lifeline, but the debate over which inflation index to use is at the heart of the problem.

The complex and often confusing inflation indexes used to calculate the rise are already drawing criticism. This complicated formula is set to create a divide, leaving some beneficiaries feeling secure while others are left behind.

Why This Annual Figure Is a Financial Lifeline

For those relying on Social Security, these cost-of-living adjustments may not feel like windfalls. They are, however, one of the most critical safeguards against the slow erosion of purchasing power, a quiet threat that can devastate a household budget over time. Without them, retirees would quickly find that the money they once counted on no longer covers basic living expenses.

The story of inflation highlights why this debate is so critical. From 1990 to 2020, inflation averaged about 2.4 per cent annually. While that rate might not sound alarming on its own, its cumulative effect is dramatic.

In 2022, Americans saw a sharp spike as inflation soared to around 8 per cent, before easing in the following years. For seniors on fixed incomes, periods like that can be devastating without COLAs built into their benefits.

The Widening Gap Between Income and Survival

Consider a retiree who begins collecting Social Security at age 62 with a £1,600 ($2,000) monthly cheque. If inflation continues at just 2.4 per cent a year, that retiree would need £2,126 ($2,658) each month by age 74 simply to maintain the same lifestyle.

By age 84, the required income grows to £2,696 ($3,370). When the COLA calculation fails to keep up, the gap between income and expenses widens.

This forces many to struggle simply to afford housing, groceries, and healthcare. This is precisely why the accuracy of the 2026 COLA calculation is not just an academic debate; it is a matter of survival.

More Than Just Retirees: Who Relies on the COLA?

Although Social Security retirement recipients are the largest group to benefit, COLAs reach well beyond them. Supplemental Security Income (SSI) recipients, seniors aged 65 and older, people with disabilities, and the blind also receive annual increases.

Federal civil service retirees, military veterans, and even some unionised workers with contracts tied to inflation are part of this broader safety net. The way the index is calculated impacts all of them, not just one group.

The COLA Ripple Effect on Public Aid and Personal Savings

These adjustments ripple outward in other ways. Eligibility for government support, such as food stamps and free or reduced-price school lunches, is linked to inflation indexes. As prices rise, COLAs help ensure that access to these essential benefits does not shrink.

For families already under financial strain, these annual adjustments can mean the difference between stability and hardship. This widespread impact is why financial experts, as reported elsewhere, emphasise supplementing Social Security with personal savings.

High-yield savings accounts or certificates of deposit can help in the short term. Meanwhile, diversified portfolios with stocks and bonds offer longer-term growth, providing resilience when inflation spikes.

Writer's pick