2026 Social Security COLA: The Little Known Data Shift That Could Impact Millions of Retirees' Benefits

Over 57 million retirees rely on Social Security benefits, which typically get a Cost-of-Living Adjustment (COLA) raise each October. This raise is based on inflation data collected by the Bureau of Labor Statistics (BLS).

But a recent decision by the BLS to reduce its data sample collection has raised some concerns. Experts are worried that this could lead to less accurate inflation numbers, potentially resulting in a smaller COLA for Social Security beneficiaries and leaving them with less buying power.

The BLS stopped collecting data from three cities in the second quarter — Lincoln, Nebraska, Provo, Utah and Buffalo, NY — due to a staffing shortage that has resulted partly because of the current hiring freeze.

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"Economists say the staffing shortage raises questions about the quality of recent and coming inflation reports. There is no sign of an intentional effort to publish false or misleading statistics. But any problems with the data could have major implications for the economy," the Wall Street Journal reported.

The formula to determine the COLA is straightforward. The Social Security Administration (SSA) compares the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of the current year (which includes July, August, and September) and compares it with the average CPI-W for the average of the previous year. The percentage increase is rounded to the nearest tenth of a percentage and applied to benefits. If there is no percentage increase, then no COLA is paid out, meaning the COLA can never be a negative number. As such, benefit levels are never cut, even when there is a drop year-over-year in the price index.

What happened at the Bureau of Labor Statistics?

In April, the BLS stopped collecting data on two cities: Lincoln, Nebraska, and Provo, Utah. In June, the BLS suspended collection entirely in Buffalo, New York.

The BLS has acknowledged, in a press release, that the loss of data from these cities "may increase the volatility of subnational or item-specific indexes" but will have "minimal impact on the overall all-items CPI-U and CPI-W indexes."

"While this suggests that the national CPI figures may remain stable, there is concern that the absence of data from these cities could lead to inaccuracies in regional or item-specific inflation measurements, potentially affecting the COLA calculation," Shannon Benton, Executive Director at the Senior Citizens League, told Kiplinger.

"If these areas experience higher-than-average inflation, their exclusion could result in an understated national CPI, leading to a lower COLA than warranted, or vice-versa," Benton said.

The cut back in data collection is rooted in a staffing shortage fueled, in part, by a hiring freeze. "The Bureau of Labor Statistics, the office that publishes the inflation rate, told outside economists this week that a hiring freeze at the agency was forcing the survey to cut back on the number of businesses where it checks prices," according to the WSJ. This hiring freeze is compounding a budget problem that has been ongoing for the agency. The Urban Institute found that, "between fiscal years 2001 and 2015, the agency [the BLS ] received less [money] than requested in all but two years."

How the the data collected by the Bureau of Statistics is used to determine the COLA

A distortion of the CPI-W data could result in either a higher or lower COLA. A higher COLA wouldn't negatively impact beneficiaries, but a lower COLA would. The negative effect would reverbate beyond the year it takes effect; it would snowball over the years as that lower monthly benefit amount is the figure that the next COLA would be applied to and so on.

Last year's COLA was a modest 2.5% because inflation was cooling. As the CPI-W is a measure of inflation, lower inflation yields a lower COLA. It's a conundrum for retirees; higher inflation erodes your current purchasing power, but will lead to a bigger COLA, albeit after the inflation has already impacted you financially. While lower inflation helps to contain prices and stretch dollars, but will result in a small COLA the following year.

The COLA is determined by taking the average of the CPI-W for the three months of the third quarter of the previous year and comparing it to the average of the third quarter of the CPI-W for the current year. You can find the CPI-W amounts for 2024 below.

After the numbers are released over the coming month you can plug in the numbers and estimate the COLA for yourself. Here's the formula: (TBD - 308.729) / 308.729 x 100 = X.X%. You then multiply that number by 100 and round-up.

Use these four steps to determine the COLA:

• Step one: You will subtract the three month average for 2024 from the average for 2025
• Step two: Divide that number by the average for 2024
• Step three: Multiply that number by 100
• Step four: round the number up

Your Social Security benefits: Why the COLA accuracy matters so much

When Social Security began in 1935, it meant to replace 40% of your income in retirement. At that time, the retirement age was 65. But today, that number has fallen. For example, if you retire in 2025 at age 65, Social Security will likely only replace 39% of your income. This decline is partly due to the full retirement age gradually increasing from 65 to 67 over the years, according to the Center for Budget and Policy Priorities.

Additionally, the Social Security trust funds face a looming insolvency, which could lead to a 23% cut in future benefits. This makes it even more critical that your annual COLA accurately reflects inflation, so your benefits don't lose buying power.

A distortion that produces a lower COLA will deprive beneficiaries of money they are entitled to and need to pay expenses; a higher COLA would accelerate the insolvency date of the trust fund by paying bigger benefits than necessary.

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