1. Inflation Is a Historic Reality
The CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) is used to track inflation and annually adjust benefits paid to Social Security beneficiaries and Supplemental Security Income recipients. Back in January 2000, the CPI-W was 165.600. By July 2026, it was 316.349, nearly double.¹ That's a steep reduction in the dollar's buying power over the last 26 years. As an example, $100 worth of groceries purchased in January 2000 might have cost $191.02 by July 2026 according to the CPI-W.
2. Inflation Is Part of the Federal Reserve's Monetary Policy
There is always a lot of discussion about inflation increases in the U.S., and a good retirement plan will take inflation into account. The inflation rate was 3.4% for the 12 months ending July 2026, down from a 2022 peak of 9.1%, the highest since 1981.² (For context, back in July 1980 it was 13.1%.) The Federal Reserve is always preparing for future inflation, and targets 2% as a healthy mark, raising interest rates to control inflation as it sees fit. In August 2026, Federal Reserve Chairman Kevin Warsh said, "We must be confident that underlying inflation is moving to our objective."³
3. COLA (Cost of Living Adjustments) Are Made to Social Security Payments Based on Inflation
Legislation enacted in 1973 provides for cost-of-living adjustments, or COLAs, to help Social Security and Supplemental Security Income (SSI) benefits keep pace with inflation. Final COLA announcements for the upcoming year are generally made in October. Currently, increases are based on the rounded Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The COLA for 2026 is 2.8%, up from 2.5% in 2025.⁴ Cost data is collected within eight overall categories: food and beverages, housing, apparel, transportation, medical care, recreation, education/communication, and other.
4. Consumer Price Indexes: CPI-W Versus CPI-E
Economists at the Bureau of Labor Statistics (BLS), part of the United States Department of Labor, say their indexes may not accurately reflect how each person spends money. In other words, statistics are averages. The Bureau publishes different indexes for different groups, including the CPI for Urban Wage Earners and Clerical Workers (CPI-W), the CPI for All Urban Consumers (CPI-U), the Chained CPI for All Urban Consumers (C-CPI-U), and many others.
Because the CPI-W is only for urban wage earners, some groups criticize its use in determining the Social Security COLA for retirees. Many believe the Consumer Price Index for the Elderly (CPI-E), for Americans 62 years of age and older, should be used in calculating annual Social Security COLAs.⁵
5. Inflation Solutions
Once you realize how inflation is calculated, and how detrimental inflation can be when you're on a fixed income, you'll want to search for solutions that will help you in retirement. Our goal is to help your retirement income cover inflation increases and protect your purchasing power over your retirement lifetime.
Frequently asked
What is the CPI-W and why does it matter for retirees?
The CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) tracks price changes over time and is the index used to calculate annual Social Security Cost-of-Living Adjustments (COLAs). As of July 2026, the CPI-W stood at 316.349, up from 165.6 in January 2000, meaning the dollar's buying power has nearly halved over roughly a quarter century.
What is the current U.S. inflation rate?
As of the 12 months ending July 2026, U.S. inflation stood at 3.4%, down from a 2022 peak of 9.1%, the highest reading since 1981. The Federal Reserve's long-run target is 2%.
What is the Social Security COLA for 2026?
The Social Security Cost-of-Living Adjustment for 2026 is 2.8%, up from 2.5% in 2025. COLAs are based on the rounded change in the CPI-W and are typically announced each October for the following year.
Why do some people think Social Security COLAs are calculated incorrectly?
Because the CPI-W tracks spending by urban wage earners, not retirees specifically, some economists argue it doesn't reflect how seniors actually spend money, particularly on healthcare. Many advocate using the Consumer Price Index for the Elderly (CPI-E) instead, which is designed to better reflect the spending patterns of Americans 62 and older.
How does inflation affect retirement income planning?
Inflation erodes purchasing power over time, meaning a fixed retirement income buys less each year unless it's adjusted. Retirement strategies that account for inflation (through COLA-adjusted income sources, growth-oriented allocations, or inflation-focused riders) can help protect long-term purchasing power.
Sources
- U.S. Bureau of Labor Statistics, CPI-W historical data, bls.gov/cpi; Social Security Administration, ssa.gov/oact/STATS/cpiw.html
- U.S. Bureau of Labor Statistics, Consumer Price Index, bls.gov/cpi
- Federal Reserve Chairman Kevin Warsh, Jackson Hole remarks, August 28, 2026, as reported at newstribune.com/news/2026/aug/30/warsh-says-inflation-isnt-slowing-vows-to-reach-2
- Social Security Administration, 2026 Cost-of-Living Adjustment Fact Sheet, ssa.gov/oact/cola/latestCOLA.html
- U.S. Bureau of Labor Statistics, bls.gov/cpi/overview.htm#item1 and bls.gov/cpi/research-series/r-cpi-e-home.htm; Forbes, forbes.com/sites/davidrae/2021/07/21/will-congress-change-social-security-cost-of-living-adjustment-is-calculated
We are a financial services firm helping our clients prepare for retirement through the use of insurance products and strategies. We do not offer tax, estate planning, or legal advice. Always consult with a qualified professional before making any decisions about your personal situation. We are not affiliated with any US government agency. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. This information is for educational purposes only and should not be taken or construed as legal, tax, or financial advice.