Urgent Warning for US Retirees – FED Issues Alert on Social Security Payments by 2026

In less than two weeks, the Social Security Administration (SSA) will announce the 2025 cost-of-living adjustment (COLA). Unfortunately, this news may be a disappointment for many retirees, as Social Security benefits are expected to grow much slower than in recent years.

In the past three years, retirees saw a total increase of 18.8% in their benefits, thanks to high inflation driving up the COLA. However, with inflation largely under control, the days of large Social Security adjustments seem to be fading.

But that’s not all. The Federal Reserve has hinted that the outlook for 2026 could be even worse, as inflation targets continue to shrink. For retirees, this likely means smaller COLA adjustments and fewer increases in Social Security payments.

CPI-W

To calculate the COLA, the SSA uses third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). So far, we have data from July and August of this year, allowing a relatively accurate forecast of the 2025 COLA. If only the July and August CPI-W data were considered, the COLA would be around 2.6%.

July’s CPI-W showed a 2.87% increase, while August’s rose by just 2.35%, reflecting a deceleration in inflation. This trend suggests that September’s data will likely show even lower inflation, reducing the final COLA estimate even further.

Energy prices have significantly influenced inflation over the past year. Oil prices, for example, have dropped sharply, dipping below $70 per barrel recently—about 20% lower than the previous year. Since energy costs affect many other sectors, lower oil prices will help ease inflation. Therefore, a 2.6% COLA may represent the upper limit of what retirees can expect in 2025.

Interest Rates

Recently, the Federal Reserve cut the federal funds rate for the first time in four years, lowering it by 50 basis points to a range of 4.75% to 5%. This decision follows two years of aggressive rate hikes aimed at controlling inflation. The Fed now believes that inflation is firmly on track toward its 2% target.

Despite this, the interest rate cut won’t impact the 2025 COLA directly. However, it does signal that the economy and labor market are in a more stable position. The Federal Reserve feels comfortable reducing rates because inflation appears to be under control. This means that retirees should prepare for slower COLA growth in the near future.

What to Expect

Looking ahead, retirees might face even more challenging conditions in 2026. According to the Federal Reserve’s projections, inflation will continue to fall, with the personal consumption expenditures (PCE) index expected to hit 2.1% by the end of 2025. This would translate into a 2026 COLA of around 2.2%, potentially lower than the expected 2025 adjustment.

While retirees enjoyed an 8.7% boost in 2023 due to high inflation, that was a reactionary measure to past economic conditions. The COLA is always backward-looking, meaning it compensates for inflation that has already occurred. Unfortunately, retirees’ everyday costs like food, electricity, and healthcare don’t always align with this backward-looking adjustment.

Preparing

For retirees, the next couple of years could be a period of adjustment. Lower COLA figures will reduce the rate of benefit increases, but there are some silver linings. As the Federal Reserve continues to reduce interest rates, borrowing costs will also decrease. This can provide financial relief to retirees who may have mortgages, auto loans, or other debts. Lower interest rates can make it easier to refinance or manage existing loans, providing a bit more financial breathing room.

Retirees should also focus on budgeting for essentials and investigating ways to maximize financial flexibility, whether through refinancing or cutting back on discretionary spending.

In short, while the days of large COLA increases seem to be behind us, there are ways for retirees to navigate this changing financial landscape. By staying proactive and planning ahead, you can adapt to these shifts and maintain financial stability.

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