Retirement Social Security

Why Social Security COLAs Continue To Fail, Even When They're Generous

Cost-of-living adjustments don't quite do the job they're supposed to do.

By Maurie Backman , Edited by Laura Hohenstein

Updated Sept. 23, 2026

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There are many older and retired Americans today who are living on just Social Security. And for people in that situation, Social Security's annual cost-of-living adjustments (COLAs) are extremely important.

Prior to 1975, Social Security COLAs had to be voted in by lawmakers, and benefits were not guaranteed to get an inflation boost. Since then, benefits have been eligible for an automatic adjustment each year. The current formula for calculating COLAs uses third quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

The problem is that the current COLA formula has a giant flaw, and if lawmakers don't fix it, seniors on Social Security could continue to lose out on buying power.

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Social Security keeps losing buying power

The purpose of Social Security COLAs is to help benefits keep up with rising costs. But the Senior Citizens League, a nonpartisan advocacy group, says that based on its research, Social Security benefits have lost an estimated 13.7% of their buying power over the past decade.

For the average Social Security recipient to get the same value from their benefits today as they did in 2016, the typical monthly check would have to increase by almost $296, the group found. On an annual basis, that's about $3,550.

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A flawed COLA formula hurts retirees

The main reason Social Security benefits have lost out on so much buying power is that they're based on an index that does not measure the real world price increases retirees tend to face. The CPI-W may do a good job of capturing the costs faced by working Americans. But Social Security recipients, many of whom are retirees, tend to spend their money very differently than people holding down jobs.

Social Security beneficiaries commonly spend a lot of their money on health care expenses, including Medicare premiums. But because health care costs in the U.S. tend to outpace inflation on a broad level, Social Security's COLAs can't keep up, since the CPI-W does not reflect that trend.

The COLA formula may not change anytime soon

Advocates like the Senior Citizens League have pushed to change the Social Security COLA formula so that it more accurately represents the costs seniors face. In fact, one popular suggestion is to base Social Security COLAs on the Consumer Price Index for the Elderly (CPI-E).

But there are a couple of reasons why this solution is unlikely to gain traction. First, the CPI-E is considered experimental, and there's too much at stake to base Social Security COLAs on an index that doesn't have the same clout as the CPI-W.

Also, Social Security is facing a funding crisis that could result in benefit cuts in just a few years. If a new COLA formula gets implemented and those annual adjustments start to increase, it could drain Social Security's limited resources even sooner, thereby accelerating the timeline of potential benefit cuts. That's not something lawmakers want.

Plus, lawmakers need to focus on finding ways to prevent Social Security cuts. So they're less likely to prioritize a new COLA formula at a time when benefits are facing a massive reduction across the board.

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COLAs aren't supposed to improve your financial picture

Another reason seniors may be feeling the strain of insufficient COLAs is that there tends to be a misunderstanding of what they're meant to do. Social Security COLAs are supposed to help benefits keep up with inflation. But they're not meant to help benefits beat inflation.

During periods when COLAs are generous, some Social Security recipients might expect their financial situations to improve. But those larger COLAs will always come at the cost of higher price increases. That's just the way the formula works. And for this reason, seniors can't bank on COLAs to improve their finances — even if the formula does change at some point in time.

Bottom line

There are millions of people who rely on Social Security for income today. But it's important to recognize that even if the COLA formula is changed in the future, those benefits plus a better formula for inflation adjustments may not be enough to set the stage for a comfortable retirement.

If you're in the process of planning for your senior years, recognize that retiring on Social Security alone can be a very big challenge. You may have to reduce your spending and limit essentials if you don't have other income to rely on in retirement.

Instead of setting yourself up to struggle, try your best to contribute steadily to an IRA or 401(k) plan. If you contribute funds every month and invest your money, you might manage to build up a sizable nest egg by the time you become eligible for Social Security benefits. And the more savings you have to tap, the easier it may be to eliminate some stress living on Social Security.

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