Dave Ramsey Warns the Social Security COLA Isn't a Raise - Here's What You Should Actually Do With It

Those receiving Social Security started 2026 with a 2.8% cost-of-living adjustment (COLA). This took the average monthly Social Security benefit from $2,015 to $2,071, giving recipients an extra $56 a month on average.

Dave Ramsey warns on Ramsey Solutions this extra cash isn't a raise. It's a buffer against rising prices. And, as recent inflation data makes clear, it was barely adequate when it was set, and it's already falling short. When the adjustment was calculated using third-quarter 2025 data, annual inflation sat around 2.8%. By April 2026, the consumer price index had climbed to 3.8%, the highest since May 2023.

If you want to keep your retirement as stress-free as possible, see below how you can make the best use of that increase.

Editor's note: Social Security and COLA data come from the Social Security Administration. Inflation figures come from the BLS. Medicare data comes from the Centers for Medicare & Medicaid Services.

Recognize the COLA for what it is

The COLA isn't designed to improve your financial situation. Its purpose is simply to prevent it from deteriorating. With the 2026 COLA running behind actual inflation, it isn't fully doing that job right now. Therefore, treating the extra dollars as spending money rather than inflation protection is one of the fastest ways to lose ground if you're on a fixed retirement budget.

Do a budget audit before making any changes

Before you adjust your spending, make sure you track what your actual expenses were over the past 12 months. Grocery, housing, and healthcare costs tend to rise faster for older Americans than national averages suggest.

If your personal cost increase is outpacing 2.8%, the COLA hasn't left you ahead. Instead, it's only reduced how much ground you are losing. You need to know your real numbers before you can make any significant changes to your budget.

Direct the increase toward your financial cushion

If, when you do your budget, your expenses are covered, the most practical use of the COLA increase is to direct it toward an emergency fund rather than discretionary spending.

Ramsey recommends keeping three to six months of expenses in accessible savings when possible. A small, consistent addition to that savings account builds a meaningful buffer over time, especially heading into years when the COLA adjustment may be even smaller.

Check what Medicare Part B takes first

If you're enrolled in Medicare, Part B premiums are automatically deducted from your Social Security check. In 2026, that premium rose to $202.90 per month, up $17.90 from $185 in 2025. That single increase wipes out nearly a third of your COLA increase before it arrives. For most recipients, the net gain in actual take-home income is less than $40 per month.

Understand why the COLA calculation works against retirees

COLAs are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks spending for working-age people but not for retirees. Seniors typically spend a larger share of their income on health care than the CPI-W reflects. Advocacy groups have pushed for a senior-specific Inflation Index for years. No change has been enacted, so retirees should expect COLAs to routinely underestimate their real cost increases.

Know that inflation has already overtaken the 2026 adjustment

The 2026 COLA of 2.8% was close to inflation when it was set. Unfortunately, it no longer is. As of April 2026, the CPI-W has risen 3.9% over the prior year, with energy costs up 17.9% and gasoline up 28.4% annually. Based on these figures, the purchasing power of the average Social Security benefit is lower today than it was at the start of the year.

Consider part-time work or a lower-cost location

For retirees whose budgets are particularly squeezed between the COLA and actual prices, finding part-time work to supplement their income could be a good solution as long as health and circumstances allow.

Alternatively, some retirees consider moving to a location with an overall lower cost of living. Both of these options reduce dependence on the annual COLA and give retirees more direct control over their retirement budget.

Build retirement income that doesn't depend on Social Security

More than a third of men and nearly half of women over 65 rely on Social Security for at least half of their income. Without Congressional action, Social Security trustees project the program may not cover full benefits past 2033.

Ramsey's recommendation is to invest 15% of gross income in tax-advantaged accounts, including a 401(k) and a Roth IRA, while still in the workforce. The theory is that the less you have to depend on the COLA, the less damage it does to your retirement plan when it falls short.

Bottom line

The 2026 Social Security COLA raised the average benefit by $56 a month, but Medicare Part B premium increases absorb a significant portion before it arrives. Inflation, running at 3.8% as of April, has already overtaken the value of the adjustment.

Dave Ramsey's warning that the COLA is a maintenance tool at best is an important one for retirees to be mindful of. Plus, of course, right now, the 2026 COLA has fallen well below current inflation. The smarter move to protect your retirement plan is to reduce how much your retirement depends on

Social Security to begin with.

Paying off debt before leaving the workforce, building tax-advantaged savings, and finding income sources outside of government programs are the steps that can actually change your financial picture in retirement. A stronger personal finance foundation means a below-average COLA affects your life far less.