12 Must-Know Facts About the 2026 Social Security COLA Increase

Each year, the Social Security Administration reevaluates its monthly payment amounts and adjusts them to account for inflation. This annual change is called the Social Security cost-of-living adjustment, or COLA. The agency announced that the 2026 COLA is 2.8%, giving retirees a modest boost in their monthly checks in January. 

If you're a retiree on a fixed income who worries about managing your budget and wants to stretch your retirement dollars, the annual COLA can have major consequences for your bottom line. This increase could offer some relief, though it may not stretch far enough to fully offset the rising costs of health care, housing, and groceries. 

Here's everything you need to know and what it could mean for your budget heading into the new year.

Starting in the 1970s, the Social Security Administration (SSA) decided to adjust monthly Social Security benefit payments to account for the year's cost-of-living increase.

This cost-of-living adjustment (COLA) applies to every Social Security recipient, so whether you're planning for retirement or already retired, your Social Security payment will change from year to year based on the COLA.

Before 1975, the Social Security cost-of-living adjustment was determined by Congress and happened only once in a while rather than once a year. After 1975, adjustments were left to the SSA and based on the Consumer Price Index.

The SSA determines the year's COLA by looking at the Consumer Price Index (CPI), which is tracked by the Bureau of Labor Statistics and calculates how much the average price of standard services and goods changes month over month. 

Specifically, the COLA is based on the CPI-W, or the CPI for Urban Wage Earners and Clerical Workers. The CPI-W is a narrower measurement than the more commonly used CPI-U, a broader measurement that considers price increases for urban consumers generally. 

In contrast to the CPI-U, the CPI-W focuses on price increases that impact hourly and clerical workers in areas like food and transportation. It doesn't focus quite as much on health care or housing costs.

The COLA for 2025 was 2.5%, marking a more modest increase compared to recent years. Because inflation was so extreme in 2022, the COLA for 2023 was 8.7%, the most significant Social Security increase in four decades.

Payments rose this year by an average of $50 per month. Monthly payments have averaged $1,976 for single individuals and $3,089 for married couples, with both spouses eligible for benefits. The maximum amount of earnings subject to Social Security tax rose to $176,100.

The 2026 COLA increase for Social Security beneficiaries is 2.8%. Payments will rise by an average of $56 per month. The maximum earnings subject to Social Security tax is slated to rise to $184,500.

For those under full retirement age, the earnings limit will increase to $24,480 in 2026, with $1 deducted for every $2 earned above this limit. Individuals reaching full retirement age in 2026 will have an increased earnings limit of $65,160, with $1 deducted for every $3 earned over this threshold.

There is no earnings limit for individuals who are full retirement age or older for the entire year.

For what it's worth, the 2023 COLA was an outlier (as was the intense level of inflation). Over the last 20 years, the average Social Security COLA was just 2.6%, according to the Senior Citizens League. 

So, while a 2.8% increase pales compared to 2023, it's still somewhat close to the average.

The change will take effect in December 2025, and the increased amount will be reflected in the benefits payment you receive for January 2026.

There can only be a cost-of-living adjustment to Social Security payments if inflation causes a cost-of-living increase for the general American public.

While inflation tends to drive prices up year over year, this wasn't true in 2010, 2011, or 2016. During those three years, Social Security payments stayed the same as the previous year.

Even if the CPI measures a decrease in the overall cost of goods and services for the year, your Social Security benefits won't decrease. At the very least, your benefits will stay the same.

So don't worry about receiving a decreased payment just because prices are dropping at your local grocery store.

Medicare Part B is the section of Medicare that helps retirees pay for routine doctor's visits, outpatient services, at-home medical equipment (like wheelchairs), and preventive care (like vaccinations).

As with other insurance plans, Medicare Part B requires the insured individual to pay a monthly premium. And if you're a retiree receiving Social Security benefits, that premium is typically deducted directly from your benefits check before it winds up in your bank account.

However, just like the general cost of living, Medicare Part B premiums tend to increase over time. According to the Centers for Medicare and Medicaid Services (CMS), next year's premiums are projected to be $206.50, an increase from $185 in 2025, which would lessen the impact of the 2026 COLA increase.

Along with the projected Social Security COLA increase and Medicare Part B premium increase, many retirees should expect to see changes to the amount of money they spend on prescriptions. 

In 2026, Medicare Part D changes include an increased out-of-pocket cost cap to $2,100, an updated standard deductible of $615, and a cap on insulin costs at $35 per month. 

Living on a fixed income is often a challenge, even for seniors who might be doing better financially than others in their age group. 

That's doubly true during unpredictable economic times, including over the last few years, when inflation drastically reduced consumers' spending power.

Unfortunately, while a 2.8% increase in Social Security benefits would be a welcome boost, it probably isn't enough to compensate for still-high prices and the mountains of debt Americans have taken on to cope with inflation.

You can count on a 2.8% increase in your Social Security payments starting this January, which will help boost your bank account.

But you shouldn't count on receiving a bump as high as we saw in 2023 at any time soon. Hopefully, 2023's dramatic inflation was a one-time event, which means the 8% increase will not likely be seen again.