Inflation is one of the biggest threats to lifelong retirement income, and the federal government recognized this issue back in 1975. That year, they introduced annual Cost-of-Living Adjustments for Social Security benefits – better known as COLAs.
Nearly every year since COLAs were introduced, the Social Security Administration has increased recipient benefits, and this year is no different. The recently announced COLA will help beneficiaries cope with rising prices over the next year.
The 2026 Social Security COLA
The 2026 COLA will increase benefits by 2.8% for all people collecting Social Security retirement benefits or Supplemental Security Income [SSI]. This is higher than the 2025 COLA of 2.5%.
The benefits increase will bring the average monthly benefit from $2,015 to $2,071. The COLA will also push the cap on Social Security benefits from $4,018 to $4,152 for a worker retiring at Full Retirement Age [FRA].
If you have already claimed benefits, you will receive a letter from the Social Security Administration later this year with a personalized benefits estimate that reflects your COLA. You can also access this information online this December by logging into your My Social Security account.
When will beneficiaries see increased benefits?
For those currently receiving retirement benefits, the COLA will be reflected in the January 2026 payment. Benefit increases for SSI recipients will begin slightly earlier on December 31st, 2025.
If you are delaying benefits past your FRA, you will still get the advantage of the COLA. The annual increase accumulates for each year that you are eligible for Social Security, and you’ll see the cumulative effect of all COLAs when you claim benefits.
How are COLAs calculated?
Annual COLAs are calculated using the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers [CPI-W] from the third quarter of the previous year through the third quarter of the current year. This year, the change was calculated from Q3 2024 through Q3 2025.
The CPI-W is calculated and reported by the Bureau of Labor Statistics, and it measures price changes across a hypothetical basket of goods and services. These changes are weighted to match the spending patterns of workers living in urban areas.
Though similarly named, the CPI-W is slightly different than the more popular Consumer Price Index for All Urban Consumers [CPI-U], which is often reported in the media. This difference means the inflation readings used to calculate the COLA may not match the numbers you’ve seen reported as simply “CPI inflation.”
Other Important 2026 Social Security Information
Inflation adjustments apply to other aspects of the Social Security program, not just benefits. This includes changes to thresholds for the earnings test and the amount of earned income subject to Social Security payroll taxes.
Higher Thresholds for the Earnings Test
The income thresholds for the earnings test will rise in 2026. The new limits are:
- $1 will be withheld for every $2 you earn over $24,480 if you will not reach FRA in 2026.
- $1 will be withheld for every $3 you earn over $65,160 until the month you reach FRA if you will reach FRA in 2026.
The earnings test applies if you are receiving Social Security benefits while continuing to work. This rule means a portion of your benefits will be withheld for each dollar you earn in excess of the applicable limit until you reach FRA. Then, your monthly benefit check is recalculated when you reach FRA to account for the withheld benefits, which are repaid over the course of your life. See the examples in this article for more details about the earnings test calculation and benefit repayment.
Your Payroll / Self-Employment Tax Could Increase
If you are still working or are self-employed, the “Social Security Wage Base” is an important consideration. This is the maximum amount of income that is taxed to fund Social Security, and the threshold will increase from $176,100 to $184,500 in 2026. However, the tax rate on this income will remain steady at 6.2% for workers and 12.4% for self-employed individuals.
While the annual inflation adjustment can mean higher tax expenses for some pre-retirees, it is a welcome change for retirees who can use the extra income to cover rising costs of necessities. For further help planning for these costs, contact an experienced financial advisor to discuss your retirement income strategy.
Social Security is Simpler with Meld Financial
At Meld Financial, our team of tax, legal, and investment professionals has helped clients maximize their Social Security income for more than four decades. We also help you choose the right Medicare plan for your situation and create a customized strategy to make retirement income last a lifetime.
Our retirement planning process centers around a comprehensive wealth management program that we call Financial Fingerprint®. This nimble program brings together the most important aspects of your financial life in one plan that is easy to understand and simple to modify as your circumstances change.
To learn more about Financial Fingerprint® or discuss your personal situation, contact a member of our team today.
