Social Security Checks Are Going Up — But Don’t Celebrate Yet
Social Security checks will be higher in January. In this week’s Fastest Four Minutes in Finance, why it’s not much to cheer about.
The Social Security Administration announced last week that retirees will see a 2.8% cost of living adjustment to their benefits in 2026. That means the average check will increase only about $56 a month.
How the COLA Is Calculated
The COLA is calculated from the average year-over-year inflation rate for July, August, and September. Inflation has cooled in the past couple of years, so retirees have not received big raises.
One big problem with calculating raises this way is that the Consumer Price Index does not include many of the things seniors actually spend money on, like health care and prescription drugs.
Healthcare Costs Are Rising Faster Than Inflation
Healthcare costs have risen 3.28% over the past year but have averaged more than 5% over the longer term, which is higher than the long-term inflation rate.
This year’s measly bump will also be eroded by a large increase in Medicare premiums. Those premiums are expected to rise by about 11.6%, about twice as much as last year. Since Medicare premiums are deducted from a retiree’s Social Security check, that will take almost half of the raise to the monthly benefit.
Retirees Say the COLA Isn’t Enough
A Motley Fool survey of Social Security recipients found that 54% say the cost-of-living adjustment isn’t enough, and 68% say the raise will provide very little or no help in covering essential living expenses.
The Bottom Line: Social Security Is Falling Behind
Bottom line — Social Security is a great foundation for your retirement. It ensures that you can’t outlive a piece of your retirement income. But it is falling behind a little every year.
If you are in retirement today, hopefully, you’ve saved and invested. To plan for cost-of-living raises to your retirement income, you need to stay invested in asset classes that historically have outpaced inflation, like stocks and real estate.
But you don’t need to have everything you have invested like that, because those asset classes can be volatile. You want to be invested in more conservative investments for the income you need now.
And if Social Security is not covering even your basic expenses, consider using some of your assets to create a guaranteed income stream, so that you don’t have to count on market performance to pay your bills.
Securities are offered through LPL Financial, Member FINRA/SIPC. GenWealth Financial Advisors is an other business name of Independent Advisor Alliance, LLC. All investment advice is offered through Independent Advisor Alliance, LLC, a registered investment adviser. Independent Advisor Alliance, LLC is a separate entity from LPL Financial.
