How COLA works
Social Security’s annual COLA is determined using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), an index overseen by the US Bureau of Labor Statistics (BLS). The CPI-W tracks the prices of essential goods and services, representing the financial pressures that most Americans experience. Each October, the Social Security Administration (SSA) calculates the percentage change in the CPI-W’s average reading during the third quarter (July, August, and September) compared to the same period in the previous year. If prices increase, benefits increase accordingly; if they remain stagnant or decrease, 0% COLA is applied.
2026: On track for a 0% COLA?
As inflation has cooled off over the past year, speculation grows about a possible 0% COLA for 2026. In the half-century since COLAs were established, there have been only three instances (2010, 2011, and 2016) when Social Security benefits remained unchanged due to deflation or stagnating prices. According to economists, such a scenario may be more likely if the current economic climate persists. In particular, price declines in sectors like energy and vehicles have significantly pulled down the CPI-W’s average, which could result in no COLA if sustained through 2025.
Interest rates, deflation, and the economy’s role in COLA
The Federal Reserve’s strategy of high interest rates to curb inflation has had a noticeable effect on the economy. While this approach helps control consumer spending and lowers inflation rates, it also heightens the risk of deflation. Since inflation serves as the primary driver for COLA increases, deflation or low inflation could freeze Social Security benefits in 2026. The SSA’s reliance on the CPI-W means that even if certain costs, like medical expenses, increase, retirees could still face a zero increase if broader economic data shows no overall rise in the cost of living.
In recent months, sectors like energy have experienced price drops, creating a ripple effect on CPI-W figures. Additionally, key economic indicators like the Federal Reserve Bank of New York’s recession probability tool estimate a 57% chance of a recession by late 2025, and economists predict discretionary spending may shrink further. These trends raise the possibility of a zero-COLA outcome as the economy cools.
Rising medical costs could strain retirees
One of the biggest concerns with a potential 0% COLA is the impact on retirees’ healthcare expenses. Medical costs, especially Medicare Part B premiums, are rising faster than general inflation. Medicare premiums are directly deducted from Social Security benefits, meaning that even without a reduction in gross benefits, retirees could see a reduction in net income.
Medicare’s Part B premium is projected to rise by about 5.9% to $185 monthly in 2025, and with a similar increase expected for 2026, retirees could see even more of their benefits consumed by medical costs without any compensation from Social Security. Most Medicare enrollees have their Part B premiums automatically deducted from their monthly Social Security checks. An estimated $10.30 per month hike in monthly Part B premiums will partially or fully offset the effect of next year’s COLA for most retirees.
A financial strain for low-income retirees
A 0% COLA is especially troubling for lower-income retirees, who often rely exclusively on Social Security. According to the Social Security Administration, roughly 21% of married couples and about 44% of unmarried individuals rely on Social Security for at least 90% of their income. For this group, an increase in Medicare premiums or any other cost, without a corresponding COLA, could jeopardize their financial stability.
The Senior Citizens League, a nonpartisan advocacy group, warns that the erosion in purchasing power is already a pressing issue for Social Security beneficiaries. Their recent analysis shows that Social Security benefits have lost around 36% of their purchasing power since 2000 due to inflation outpacing COLA increases. Another year without a COLA would further compound this effect, leaving many beneficiaries without the means to meet rising expenses.
Expert predictions for the next 12 months
While much is still uncertain, economic predictors point towards a potential COLA freeze in 2026, contingent on inflation trends. The outcome hinges on the trajectory of consumer prices, which could be impacted by external factors like geopolitical tensions, energy price volatility, and possible recessions.
The SSA’s decision will ultimately depend on CPI-W data collected through Q3 of 2025. If current economic trends continue, retirees may indeed face an unchanging benefit amount for 2026. Still, there remains a possibility of inflation picking up again, which could lead to a modest COLA, avoiding a freeze altogether.
