2026 Social Security COLA increase: What future retirees should know

As retirement approaches, many Americans are navigating a landscape that feels uncertain. Rising costs, shifting markets and questions about long-term financial security are top of mind. While Social Security isn’t a complete solution, its annual cost-of-living adjustment (COLA) offers one way to help your income keep pace with changing times.

The Social Security Administration (SSA) designed COLAs to help ensure that benefits maintain their purchasing power over time. These adjustments are typically announced every October for the following year. But if you're still a few years out from retirement, will that adjustment affect you? That depends on when you start claiming benefits. Here's what you should know.

On October 24, 2025, the Social Security Administration (SSA) announced a 2.8% increase in benefits for 2026. This represents a modest rise from the 2.5% adjustment in 2025. By comparison, benefits increased by 3.2% in 2024 and a substantial 8.7% in 2023, reflecting a trend toward easing inflation.

"Social Security is a promise kept, and the annual cost-of-living adjustment is one way we are working to make sure benefits reflect today’s economic realities and continue to provide a foundation of security," said Social Security Administration Commissioner Frank J. Bisignano. “The cost-of-living adjustment is a vital part of how Social Security delivers on its mission.”

Nearly 71 million Social Security beneficiaries will see this increase starting in January.

To mitigate the effect of inflation on retirees, Social Security calculates an annual cost of living adjustment for those receiving retirement benefits and disability (technically, Supplemental Security Income). Inflation can be measured in a number of ways, but the SSA relies on a figure known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. The administration uses the growth in CPI-W from the third quarter of the previous year until the third quarter of the current year to figure out what that COLA will be.

When inflation is low or flat, COLAs may be minimal—or even zero. But in high-inflation years, the adjustment can be substantial. For example, the SSA implemented an 8.7% COLA in 2023, the largest increase in four decades.

The COLA applies to a recipient's primary insurance amount, or PIA, which is what recipients qualify for if they collect benefits at their full retirement age. Suppose, for example, that your PIA was $2,000 a month in 2025. After the 2.8% adjustment, your benefit would increase to $2,056.

COLAs apply to:

• Retirees receiving benefits based on their earnings record
• Spouses and survivors receiving benefits
• Individuals receiving disability benefits.

For current recipients, it's worth bearing in mind that your PIA and the amount you actually collect may not be the same. If you start receiving benefits before your full retirement age, your monthly benefit may be less. Conversely, if you delay benefits until after your full retirement age, it may be more (though monthly benefit increases stop at age 70). In addition, Medicare premiums automatically deducted from Social Security payouts may offset the COLA. Therefore, the change in your monthly benefit may not match the COLA precisely.

If you haven’t yet claimed Social Security, COLAs may still impact your future benefits—depending on when you file. To understand how this works, it's important to first understand how the SSA calculates retirement benefits.

The basis for your Social Security benefit is a figure known as your average indexed monthly earnings, or AIME. To arrive at your AIME, the program takes the actual earnings for each year you worked and adjusts the years earlier in your career to bring them closer to what you earned after age 60. It then averages your 35 highest indexed earnings years and divides that number by the 12 months of the year. The resulting figure is your AIME. To arrive at your PIA, the administration then applies a specific formula to your AIME based on your first year of eligibility.

Say you have a friend who reached full retirement age in 2025—which happened to be age 66 and 4 months—and applied for Social Security that same year. She could receive any COLAs she had missed out on since becoming eligible for benefits at age 62 in 2020. These increases would be applied to her PIA.

However, if your friend had started claiming Social Security retirement benefits at age 62 when she first became eligible, she would not get COLA adjustments for prior years. You only receive COLA adjustments if you apply for retirement benefits after age 62. Specifically, you get adjustments for any years between your first eligibility (at age 62) and your filing date.

Even if you don't receive any previous COLA increases, your Social Security benefits indirectly take inflation into account. The process of indexing wages to arrive at a PIA means the program is adjusting lower-earning years upward to calculate your benefit. In fact, on average, new beneficiaries receive larger monthly benefits than existing recipients, according to the SSA.

Cost of living adjustments help Social Security recipients weather the impact of rising prices, especially during periods of high inflation. However, not every future beneficiary will see their net income rise by the full amount of the COLA. The reason: A higher income can make more of your Social Security benefit taxable.

The IRS uses your "combined income"—that is, adjusted gross income plus nontaxable interest plus half of your Social Security benefit—to determine the tax status of your Social Security benefits. If you don't receive significant income from wages or investments, you may not have to pay any tax on your monthly benefit. But that changes once your earnings exceed certain thresholds.

For instance:

• If you're unmarried and your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxed. If it’s above $34,000, up to 85% may be taxable.
  
• If you're married filing jointly, up to 50% of your benefits may be taxed if your combined income is between $32,000 and $44,000. Above $44,000, up to 85% may be taxable.

A new senior deduction, introduced through the One Big Beautiful Bill Act, may help reduce your taxable income if you're 65 or older—potentially shielding more of your benefits from tax.

Because past cost-of-living adjustments (COLAs) can increase your tax liability—especially if you delay claiming benefits beyond age 62—it’s important to plan ahead. When you apply for benefits, you can ask the SSA to withhold federal taxes from your monthly payment to avoid surprises during tax season. And working with a financial advisor can help you create a strategy that helps reduce the tax impact to your financial plan.

While Social Security offers inflation protection, it’s just one piece of your retirement income. Consider how other assets—like pensions, investments and savings—will hold up over time.

Now may be a good time to:

• Review your retirement plan.
• Explore inflation hedges (e.g., Treasury Inflation-Protected Securities, annuities).
• Connect with a financial advisor to align your income strategy with your lifestyle goals.