Inflation Isn’t One Number—Why the 2.8% COLA Might Mislead You
Inflation Isn’t One Number—Why the 2.8% COLA for Social Security Income Recipients Starting 2026 Might Mislead You
You probably saw the headline: Social Security is getting a 2.8 % cost-of-living adjustment (COLA). That’s great—but here’s the thing: that 2.8 % is based on a national average inflation basket. It most likely does not match your spending pattern. Whether you’re already receiving your Social Security income, or if you’re a high-earning woman, business owner, or creative side-hustler, you may feel inflation more (or less) than the “average.”
Here’s how to make sense of it—and what to do so inflation doesn’t quietly erode your wealth.
Why the big number doesn’t tell the full story and How to Find Your Personal Inflation Rate
When we talk “inflation” we often mean “prices rising.” I’m a number nerd, so I love to actually dig further into the data that the media presents. The Bureau of Labor Statistics tracks many categories, including: food at home, food away from home, shelter (rent/owners’ equivalent rent), utilities, energy, medical care, recreation, etc.
Some categories have prices that are rising faster than others, and the movement changes depending on where you live, time of year, and many other factors. So while the country’s CPI for September was 3.0%, if you live in the Northeast, where I live, your personal CPI may look different.
But if we dig deeper into the data (this is where I like to nerd out - note that the regional data is a month behind), we’ll find that:
· Utilities and piped gas service in the Northeast rose 23.0 % year-over-year.
· Electricity rose ~12.5 % in the same region.
· Food at home rose ~1.9 % in the year ending June.
So if your spending is heavy on utility bills, you’re facing a much steeper inflation bite than someone whose spending leans more toward groceries. Further, that data point suggests that during the upcoming months, perhaps we’d like to focus on eating more at home than we may in another period of inflation.
For reference, the Northeast data is found here.
Small Adjustments, can have a Big Impact in your ability to grow your wealth. Here are Five action steps you can take today:
1. Estimate your personal inflation rate.
Get a clear handle on your household spending. Break it into major categories: shelter, utilities/energy, food, transportation, medical, recreation, and other goods and services. Assign recent inflation rates (regional where possible). Weighted by how much you spend in each category, you’ll get your effective inflation % (which might be higher or lower than national average).
2. Highlight high-risk categories.
In the Northeast, utility/piped gas and electricity have spiked. Shelter costs (rent/owners’ equivalent rent) are rising steadily. If you spend heavily there, those areas become focus points for cost control. Food for thought – if you’re feeling squeezed here, is now the time to consider downsizing, making a move to a lower cost part of the country, or even to consider multigenerational living arrangements to save costs AND participate in the lives of your children and grandchildren.
3. Consider spending substitution or reduction.
If a category is rising fast, ask: Can we shift some of the spending toward slower-rising categories? Here are a few examples:
If energy costs are high, invest in efficiency (LED lights, better insulation, programmable thermostat). And tell your family members to turn the lights out and unplug chargers not in use.
If meat proteins in the grocery basket are rising faster than dairy or other proteins, maybe rotate in alternatives more often than you have been. Hey, it may even benefit your health!
If shelter costs keep increasing, maybe look ahead at refinancing, moving, or reducing your footprint. Consider this especially if you’re an empty nester, approaching retirement, or approaching your later years when you want fewer maintenance duties and safer living situations.
🎇 These ideas are not intended to be one-size-fits-all suggestions, they’re ideas to spark intentional decision-making rather than being passive.
4. Link inflation to your investment and savings strategy.
Firstly, wrap your ahead around what ‘inflation’ means in terms of my overall wealth-building strategy.
Basically, that gelato you eat today will cost more to buy tomorrow.
But what does this do to my investment portfolio’s REAL value?
If your investments are growing 6% annually, but due to rising costs of your life in your area your spending is rising 5 % you’re barely keeping up from a wealth growing perspective. So build your financial plan to target real return (after inflation) and budget to keep up with your inflation rate—not just the headline.
5. Review annually (or semi-annually).
Things change: your spending mix changes, inflation categories shift, you move, you add business or side-hustle costs, etc. Schedule a check-in where you revisit your effective inflation rate and ask: Is my spending aligned? Is my income/rate of return enough? Do I need to adjust?
〰️ The Bottom Line
So yes—the 2.8 % COLA for Social Security is a helpful signal. While that number is assigned to Social Security income recipients, it is helpful for everyone to understand. Your personal inflation rate might be higher (or lower) depending on where you live, and how you spend.
When you pay attention to how you spend—and how fast those categories are rising—you gain control. You can adjust your budget, protect your wealth, and keep your plan on track.
And if you like nerding out on BLS tables like I do, dive in. Because the more you know, the less inflation can sneak up on you. Your future self will thank you.
You can’t control inflation, but you CAN control how you respond to it.
About the Author
Catherine Valega, CFP®, EA, CAIA, is a wealth and tax strategist helping high-earners and business owners build intentional, tax-smart, values-based wealth. Learn more here.
🐝 FAQ: Inflation Monitoring & Spending Strategy for High Earners
Why should I monitor inflation components rather than just the headline rate?
Headline inflation (e.g., overall Consumer Price Index) hides where your specific costs are rising fastest. By tracking components like housing, healthcare, tuition, or business expenses, you can adjust your spending and investment strategy to protect your real purchasing power. :contentReference[oaicite:1]{index=1}
Which inflation indexes should I use to evaluate my personal spending impact?
Consider the CPI for consumer goods, the Personal Consumption Expenditures Price Index (PCE) which the Fed prefers, and even specific category-level data (e.g., shelter, education, medical). For business owners or high earners, also monitor cost indices tied to your industry or supply chain. :contentReference[oaicite:3]{index=3}
How can I adapt my spending strategy when inflation is high?
Prioritize expenses that inflate fastest (e.g., housing, healthcare). Lock in fixed-rate obligations where possible, increase savings or alternative asset exposure to hedge inflation, and review business or personal cost structures for inflation-sensitive inputs. Make sure your spending plan accounts for rising real costs. :contentReference[oaicite:4]{index=4}
How do I adjust my investment strategy in an inflationary environment?
Consider inflation-linked securities, real assets (e.g., real estate, commodities), and equity sectors that can pass on cost increases. Also revisit your asset allocation: inflation erodes fixed-income returns, so balance your portfolio accordingly to preserve purchasing power. :contentReference[oaicite:5]{index=5}
When should I reassess my budget and spending given inflation trends?
At minimum annually, but ideally every quarter during high inflation periods. Review your spending categories with the fastest cost increases, compare them to your income growth or business profits, and adjust savings, investing, and liquidity buffers accordingly. :contentReference[oaicite:6]{index=6}
How should business owners adjust pricing and cost planning during inflation spikes?
Start by identifying which inputs and expenses are inflating fastest—labor, materials, insurance, or outsourced services. Raise prices gradually and transparently when needed, renegotiate vendor contracts, lock in long-term supply agreements, and increase your operating reserves. High earners with business income should also revisit quarterly tax estimates, as inflation-driven revenue changes can shift tax obligations.
How does inflation change my long-term retirement income plan?
Inflation reduces the real value of fixed withdrawals, pensions, and bond-heavy portfolios. High earners should stress-test their retirement plan using higher long-term inflation assumptions, review withdrawal rates annually, and consider allocating more to growth-oriented assets, inflation-linked bonds, and tax-efficient accounts. Your spending assumptions should reflect today’s pricing trends, not historic averages.
This is written for educational purposes only. Always consult with your legal and tax