5 Things Retirees Can Do Now To Prepare for a Potential Drop in the 2026 Social Security COLA
Written by
J. David Herman
Edited by
Amber Barkley
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Retirees who count on Social Security should prepare for a relatively meager cost-of-living adjustment (COLA) to their benefits in 2026.
So reported The Senior Citizens League (TSCL), a leading senior advocacy group. TSCL recently predicted that the COLA for 2026 will come in at 2.3%. That’s up from a 2.1% prediction the previous month. Both of those figures would be lower than this year (2.5%), 2024 (3.2%) and 2023 (8.7%). The Social Security COLA hasn’t come in under 2% since 2021, when benefits increased by 1.3%.
“A 2.1% COLA is relatively small, especially compared to the large COLA increases in recent years, and it may not fully offset the rising living costs for retirees,” said Shannon Benton, TSCL’s executive director. “Retirees who rely heavily on Social Security could struggle to keep up with inflation, especially for essential expenses like healthcare, housing and food, which tend to increase faster than overall inflation.”
The COLA, announced by the Social Security Administration each October for the following year, has already been criticized in past years as failing to keep up with retirees’ expenses. With a modest 2026 increase expected amidst turbulent economic times, here are five steps retirees can take right now to prepare.
Next, learn more about how the economy could shape your retirement.
Review and Adjust Your Budget
It’s always a good idea to review your budget and ponder where you might cut discretionary spending. If you’re staring down a relatively paltry Social Security COLA, reviewing your budget is a must.
Consider crafting a budget in advance that accounts for a lower COLA. Or, ponder what cuts you would need to make if the 2026 COLA came in at 0% — it can never be lower. If you can start sticking to these budgets and saving money before the COLA is announced, even better.
“Regularly evaluate your spending to identify areas where you can cut back, such as entertainment, dining out or subscription services,” Benton said. “Make sure your budget focuses on essentials — housing, utilities, healthcare, groceries — before spending it on non-essentials. If inflation rises and COLA doesn’t cover it, reducing discretionary spending can help you stay afloat.”
Consider Other Income Sources
If the COLA fails to keep up with your living expenses, you may need to find other ways of bringing in income. It wouldn’t hurt to get going on this sooner rather than later.
Additional income from investments or even a part-time job or side hustle could help you deal with a COLA that falls short. Benton also advised homeowners to consider renting out a room or exploring other ways to generate rental income, such as renting storage space or parking.
Beef Up Your Emergency Fund
Financial pros generally recommend having three to six months of living expenses saved up in case of an emergency. That’s aspirational for many, especially in these days of inflation and widespread economic insecurity.
If you’re worried about a lower COLA, however, now may be a good time prioritize getting as close to that three-to-six goal as you can. Or if you are already there, adding even more. Having more in the bank will increase peace of mind and help you weather disappointing benefit news.
“Keep your emergency fund in a low-risk, easy-to-access account, such as a high-yield savings account, so you can access it quickly in case of a financial shortfall,” Benton said.
Check Out Inflation-Indexed Investments
Consider Treasury Inflation Protected Securities (TIPS), which are designed to guard against inflation.
The principal of a TIPS increases along with inflation and decreases along with deflation. When it matures, you’re never left with less than the original principal. You’ll have either the increased price or the original principal, whichever is higher.
Inflation-protected annuities (IPAs) are also becoming more popular as retirees look to protect their purchasing power.
Stay Informed
Keep up with the latest developments around COLA to reduce your odds of being surprised when benefit increases are announced in October. You’ll be more likely to be prepared and take the announcement in stride.
In addition to predictions from TSCL, keep an eye on inflation rates. Cooling inflation may mean a lower COLA.
It’s also worth watching the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index from the Bureau of Labor Statistics tracks changes in the prices paid for various consumer goods and services, and it is used in calculating COLA each year.
And don’t forget to track proposals in Congress that could affect COLA calculations or Social Security benefits in general. One current proposal would eliminate taxes on Social Security benefits, which could save retirees thousands of dollars each year.
Additional Tips
Benton’s other suggestions for preparing include shopping around for the best health insurance plans, taking advantage of senior discounts and community resources, prioritizing debt repayment, and consulting a financial advisor.
“By staying proactive and prepared, seniors can help mitigate the impact of unexpected changes in COLA and maintain their financial stability throughout retirement,” she said.
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