Retirees and other beneficiaries will see a 2.8 percent monthly bump in their Social Security benefits next year to reflect inflation.
The Social Security Administration announced the annual cost-of-living adjustment on Friday after the government shutdown delayed the release of September inflation data for the broader economy. The adjustment, known as the COLA, will be added in January to the benefits of 75 million Americans, a group that includes retirees and their spouses and survivors, as well as those who receive disability benefits and Supplemental Security Income. The average monthly benefit amount will increase by about $56. The maximum amount of earnings subject to the Social Security tax will rise to $184,500.
For seniors, much of the increase will go toward health care costs. The health spending burden for people enrolled in Medicare is twice as large as that of other households, and it accounted for 13.6 percent of total spending in 2022, according to KFF, a health care research nonprofit.
The dollar amount of the COLA varies according to one’s benefit level. That means the net increase in benefits will depend on how much Medicare’s Part B premium goes up, which is deducted from the Social Security benefits of most retirees and covers doctor visits and other outpatient care.
The premium for 2026 has not yet been announced, but the latest annual report on Medicare’s finances from the program’s trustees projected that it would rise 11.6 percent, or $21.54, next year to $206.50 per month. If that forecast holds, the Part B increase alone will consume nearly half of the COLA awarded to the average beneficiary. For those who receive less Social Security, the Part B increase could significantly reduce any boost they would receive from the adjustment.
The small inflation adjustment comes at a time when a majority of seniors are financially fragile. A recent study by the National Council on Aging, an advocacy group, found that 80 percent of Americans ages 60 and over would not have sufficient resources to handle a financial shock such as a divorce, a serious health problem or the need to pay for long-term care. The study also found a strong link between wealth and life span: The poorest Americans die, on average, nine years earlier than the wealthiest Americans.
“The bottom line is that it’s getting harder and harder to age in America,” said Ramsey Alwin, the president and chief executive of the National Council on Aging.
Living costs and inflation rates vary considerably around the country, and that means a Social Security benefit goes farther in some regions than in others.
For example, single older adults in good health living in New York City would need an annual income of $30,936 to meet their basic needs (housing, food, health care and transportation), according to the Elder Index, which measures the typical cost of living for older people for every county in the United States. If that same person lived in Birmingham, Ala., basic living expenses would total $21,576. Housing and health care costs account for much of the difference.
Social Security replaces roughly 40 percent of pre-retirement wages for middle-income workers. Savings play a critical role in closing the gap between that benefit and a retiree’s actual expenses. A recent Vanguard study found that just 42 percent of Americans are on track to maintain their standard of living in retirement; workers with access to a workplace 401(k) plan are twice as likely to be financially ready for retirement.
“Those who do have access appear to be on a stronger footing,” said Fiona Greig, the global head of investor research and policy at Vanguard.
Cutting spending in retirement is another option, but it is available mainly to higher-income retirees, who can reduce discretionary spending on things like entertainment and travel, Ms. Greig said. “There’s a lot of extra costs that high-income people tend to shed in retirement compared with low-income people,” she said. “Lower income people don’t have much budget that they can cut.”
The COLA formula uses one of the broadest government measures of consumer prices, the Consumer Price Index for Urban Wage Earners and Clerical Workers, which reflects price changes for a group of goods and services bought by working people. The index’s numbers for July, August and September are averaged to produce the COLA. The COLA for 2026 is roughly in line with those awarded for the past two years, after two years of very large increases during and after the pandemic, when inflation rates were high.
The Social Security Administration will notify recipients about their new benefit amounts by mail and online starting in early December.
The National Council on Aging offers an online benefits checkup that can be used to search for assistance with the cost of health care, food, housing and utilities.
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