The Social Security Administration (SSA) announced an annual cost-of-living adjustment (COLA) for 2026, pegged at 2.8%. This increment marks one of the smallest increases since 2020 and follows a 2.5% boost in 2025. The adjustment will yield an additional $56 for the average retiree, resulting in a monthly benefit of $2,071, up from $2,015 in the previous year. For married couples, monthly benefits are expected to rise by an average of $88, pushing their monthly benefit to $3,208 from $3,120.
Originally, the 2026 COLA was scheduled for release on October 15, but the announcement was postponed due to the ongoing government shutdown. Despite the shutdown, some employees at the Bureau of Labor Statistics (BLS) were recalled to facilitate the preparation of the September Consumer Price Index (CPI), which is crucial for calculating the COLA. The CPI figures were also released on October 24.
While the 2.8% increase is only marginally higher than the prior year’s increase, it aligns closely with the historical average of approximately 2.6% over the past two decades. It’s worth noting that the COLA has fluctuated significantly in recent years, with near-zero increases in some years, such as in 2016, and a remarkable 8.7% increase in 2023 due to surging inflation post-COVID disruptions.
The COLA is determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This metric was adopted following the inflation crisis of the 1970s, which saw the purchasing power of fixed pensions and Social Security benefits eroding significantly. The COLA has been automatically applied since 1975, calculated using the percentage change in average prices between the third quarters of consecutive years.
Proposals have been floated to use the Consumer Price Index for Americans aged 62 or older (CPI-E), which proponents argue more accurately reflects the cost burdens faced by older adults, particularly due to rising medical expenses. However, these proposals have not yet gained traction, and the issue remains contentious.
The COLA affects various Social Security benefits, including those for disabled individuals and survivors, rather than only retirees. Additionally, those who claim Social Security benefits early may face the earnings test, which impacts benefits if the individual continues to work. For 2026, the threshold is set at $24,480 annually, with benefits reduced at a rate of $1 for every $2 earned above this cap. It becomes slightly less stringent in the year respondents reach full retirement age.
As for taxation, the cap on income subject to Social Security tax will rise to $184,500 in 2026, an increase of $8,400 from $176,100 in 2025. This cap is adjusted based on inflation and is expected to continue to rise in subsequent years.
To qualify for Social Security benefits, individuals must accumulate a minimum of 40 credits, which can be earned through employment or self-employment. In 2026, one credit requires earnings of $1,890, while four credits necessitate a total earning of $7,560 over the year—up from $80 compared to the previous year.
Potential beneficiaries can also consider strategies to increase their monthly payouts, such as delaying their claims until age 70. This can yield an up to 28% higher benefit relative to starting at full retirement age. Collecting benefits early, however, can significantly diminish monthly payouts.
Overall, these adjustments and calculations illustrate the nuances of Social Security benefits and the ongoing adaptations in response to changing economic conditions, emphasizing the importance of planning for retirement in light of future adjustments.
