Social Security recipients to get 3.6% raise, outpacing job stayers' wage growth

Economist warns retiree inflation indexing could widen inequality as boomers dominate spending

By LineZotpaper

Published20 October 2026

Read Time2 min

The Social Security Administration will raise benefits by 3.6% in January for about 72 million recipients, a cost-of-living adjustment that exceeds the 3.4% median wage growth seen by workers who stayed in their jobs, according to new data. Independent economist Aaron Terrazas says the gap reflects a shift from cost-of-labor to cost-of-living indexing and could deepen economic inequality.

The Social Security Administration has announced a 3.6% cost-of-living adjustment (COLA) for next year, affecting roughly 72 million beneficiaries. The increase is higher than the September three-month moving average year-over-year median wage growth for job stayers, which stood at 3.4%.

Independent economist Aaron Terrazas noted that retiree income is adjusted with the cost of living, whereas working people are mostly compensated according to the cost of labor. "For most of the past decades, we've been in a low inflation labor shortage world, so that's worked out in workers' favor, but it feels like that's shifting underneath the surface," he said. He also pointed out that COLAs have exceeded job stayers' wage increases in three of the past six years, including the 8.7% adjustment announced in 2022 amid the post-pandemic inflation spike.

The headline consumer price index rose 3.7% year over year in September, remaining above the Federal Reserve's 2% target but down from 2022 highs. The Social Security Administration bases the annual adjustment on the average of a related inflation rate during the third quarter of each year.

While job switchers have seen higher median wage growth than job stayers, Terrazas cautioned that finding new opportunities is difficult in the current low-hire, low-fire environment. White-collar fields have experienced job loss, and leisure and hospitality employment has been volatile. "It's tough, I think, for job seekers to see headlines when we get the jobs report that unemployment is low, but it's something very different from what they're feeling," he said.

Terrazas argued that indexing retiree incomes to inflation rather than labor costs, combined with the growing share of Americans in their retirement years, could continue to drive the K-shaped economy of the haves and the have-nots. Baby boomers are in their core retirement spending years, he said, though spending may contract once people reach their 80s and become homebound.

Analysis

Why This Matters

About 72 million recipients will see a raise larger than many workers' pay increases, potentially widening the gap between retirees and wage earners.
Inflation remains above the Federal Reserve's 2% target, and the COLA mechanism ties retiree incomes to prices while workers are tied to labor costs.
The K-shaped recovery could deepen as aging boomers drive outsized spending while white-collar job seekers struggle in a low-hire environment.

Background

The Social Security Administration adjusts benefits annually based on a related inflation measure averaged over the third quarter. This year's 3.6% increase exceeds the 3.4% three-month moving average wage growth for job stayers in September. The headline consumer price index rose 3.7% year over year, down from 2022 highs but still above the Fed's target. Historically, workers benefited from low inflation and tight labor markets, but that dynamic appears to be shifting.

Key Perspectives

Aaron Terrazas, independent economist: He points out that retiree income is indexed to the cost of living while working income is indexed to the cost of labor. He warns this could continue to drive a K-shaped economy, with older consumers doing the heavy lifting on spending until they age into their 80s and spending contracts. Workers and job seekers: The source indicates that job switchers see higher wage growth than stayers, but the current low-hire, low-fire environment makes switching difficult. White-collar fields have seen job losses, and leisure and hospitality employment is volatile, leaving many professionals struggling to find new roles. Retirees: The 3.6% COLA provides an increase intended to preserve purchasing power, though the article does not include direct retiree voices.

What to Watch

The trajectory of the consumer price index: if inflation stays above the Fed's aim, COLAs could continue to outpace typical raises.
Wage growth for job switchers versus stayers: whether the switching premium persists as hiring remains anemic.
The spending behavior of baby boomers as they age: any contraction could change the consumer landscape.

Sources

Retirees are getting a 3.6% raise in Social Security. People staying in their jobs are getting only 3.4%. · All Content from Business Insider

Checked

12 claims in this story checked against 1 source: 8 supported.

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SupportedSocial Security recipients will get a 3.6% raise, outpacing job stayers’ 3.4% wage growth.All Content from Business Insider: “About 72 million recipients will experience a 3.6% increase in their benefits in January, higher than the September three-month moving average year-over-year median wage growth for job stayers at 3.4%.”
SupportedRetiree inflation indexing could widen economic inequality.All Content from Business Insider: “This, Terrazas thinks, could continue to drive the K-shaped economy of the haves and the have-nots”
Partly supportedBaby boomers dominate spending.All Content from Business Insider: “older consumers are driving an outsize share of spending”
SupportedAbout 72 million recipients will receive a 3.6% benefit increase in January.All Content from Business Insider: “About 72 million recipients will experience a 3.6% increase in their benefits in January”
SupportedThe 3.6% COLA exceeds September’s 3.4% three-month moving average of year-over-year median wage growth for job stayers.All Content from Business Insider: “higher than the September three-month moving average year-over-year median wage growth for job stayers at 3.4%.”
Partly supportedCOLAs exceeded job stayers’ wage increases in three of the past six years, including an 8.7% adjustment announced in 2022.All Content from Business Insider: “the most recent being the 8.7% 2023 increase announced in 2022 amid the post-pandemic inflation spike.”
SupportedTerrazas said retiree income is adjusted with the cost of living, while working people are mostly compensated according to the cost of labor.All Content from Business Insider: “"Retiree income is adjusted with the cost of living, whereas people who are working are mostly compensated according to the cost of labor," Terrazas said.”
Partly supportedTerrazas cautioned that finding new opportunities is difficult in the current low-hire, low-fire environment.All Content from Business Insider: “The problem is that it may be hard to find a new opportunity, depending on where you're looking. The US has spent the last couple of years in a low-hire, low-fire period”
Partly supportedTerrazas said, “It's tough, I think, for job seekers to see headlines when we get the jobs report that unemployment is low, but it's something very different from what they're feeling.”All Content from Business Insider: “"It's tough, I think, for job seekers to see headlines when we get the jobs report that unemployment is low, we're continuing to create jobs, but it's something very different from what they're feeling," Terrazas said.”
SupportedThe headline consumer price index rose 3.7% year over year in September.All Content from Business Insider: “The headline consumer price index increased 3.7% from a year ago in September”
SupportedThe Social Security Administration bases the annual adjustment on an average inflation rate from the third quarter.All Content from Business Insider: “The Social Security Administration bases the annual cost-of-living adjustment on the average of a related inflation rate during the third quarter of each year.”
SupportedJob switchers have had higher median wage growth than job stayers.All Content from Business Insider: “the three-month moving average for job switchers was higher than for job stayers”