Social Security benefits remain a vital source of monthly income for millions of Americans. The amount beneficiaries receive each month hinges on various factors, including the age they begin claiming benefits and their lifetime earnings.
There are some important changes on the horizon for Social Security that beneficiaries should be aware of.
For the year 2026, the Cost Of Living Adjustment (COLA) is projected to be around 2.7%, according to the Social Security Board of Trustees. This adjustment helps beneficiaries maintain their purchasing power against inflation. In 2025, the COLA was set at 2.5%, and beneficiaries received this increase in January. The COLA is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) data from the third quarter of the current year compared to the same period in the previous year.
However, there are differing predictions for the 2026 COLA, with The Senior Citizens League (TSCL) and policy analyst Mary Johnson estimating it may remain at 2.5%. Their research suggests a growing disconnect between reported governmental inflation and the inflation experienced by seniors, who tend to follow different spending patterns than those reflected in the CPI-W.
Shannon Benton, TSCL’s Executive Director, has highlighted concerns regarding inflation, stating that seniors might feel an economic squeeze not reflected in government reports.
In addition to COLA, changes regarding the Social Security tax on income are also significant. The current maximum taxable earnings limit stands at $176,100 for 2025 but is projected to increase to $183,600 in 2026. The Social Security program is funded primarily through payroll taxes, which are levied at a rate of 6.2% of a worker’s earnings.
An interesting finding from the Nationwide Retirement Institute is that a substantial number of adults (75%) mistakenly believe that Social Security taxes are applied to all their income, highlighting a gap in understanding.
Beneficiaries should also note the full retirement age, which for individuals born in 1960 and after is set at 67. Although individuals can start claiming from age 62, early claims result in reduced benefits. Income limitations further impact Social Security benefits before reaching full retirement age: exceeding certain income thresholds can result in reduced monthly payments.
In conclusion, while workers can expedite the claim process, it’s crucial for seniors and those nearing retirement to stay informed about these potential changes to Social Security that could affect their financial future. Being proactive in understanding these adjustments can help in planning ahead, ensuring financial security in retirement.