Retirement Tip of the Month

Changes Coming to Social Security in 2026

Several significant changes to the Social Security system will go into effect beginning in January 2026. These changes will affect benefit amounts, retirement age rules, taxes, and the minimum income required for future benefits.

Cost-of-Living Adjustment (COLA): 2.8% Increase

On October 24, the Social Security Administration (SSA) announced a COLA of 2.8% for 2026. This modest increase follows a 2.5% hike in 2025 and is one of the smallest since 2020. The COLA reflects inflation trends as measured by the Consumer Price Index.

Higher COLAs help retirees keep up with inflation, but they also indicate that living expenses, particularly for housing and healthcare, are increasing. In 2026, the average retiree will earn approximately $2,071 per month, up from $2,015 in 2025. The average increase for married couples will be $3,208, up from $3,120.

The benefit increase will be partially offset by higher Medicare Part B premiums, which are expected to rise by $21.50 to $206.50 per month. After this deduction, the average retiree’s net COLA gain will be approximately $34.50 per month. This means that Medicare will cover roughly 40% of the increase.

The COLA announcement was delayed from its original October 15 release date due to the government shutdown. The shutdown halted data processing at the Bureau of Labor Statistics (BLS). Some BLS employees were called back to finalize the CPI data required for the COLA calculation.

Full Retirement Age (FRA) Increases

The full retirement age (FRA), or the age at which you can claim 100% of your benefits, is rising as part of a long-term adjustment enacted in 1983.

• Born in 1959: FRA becomes 66 years and 10 months, effective November 2025.
• Born in 1960 or later: FRA reaches 67, starting in November 2026.

This is the final step in the phased increase from 65 to 67, which is intended to reflect longer lifespans and reduce financial strain on Social Security.

Early retirement at age 62 will permanently reduce benefits by 5/9 of 1% for each month prior to FRA (up to 36 months) and 5/12 of 1% for each additional month. Delaying benefits beyond FRA, on the other hand, boosts them by 8% per year until age 70 due to delayed retirement credits.

Working longer hours increases your benefits by adding more high-earning years to your record. The SSA calculates your benefit amount based on the 35 highest earning years.

Higher Social Security Tax Cap

Each year, the Social Security Administration establishes a limit on the amount of a worker’s income that is subject to Social Security taxes. The taxable wage cap for 2026 will be $184,500, up from $176,100 in 2025.

Employees and employers each pay 6.2% of wages up to the limit, while self-employed people pay 12.4%. The maximum Social Security tax in 2026 will be $11,439.

Unlike Social Security, Medicare taxes are levied on all wages, with no income limit. Workers pay 1.45%, while those earning more than $200,000 (or $250,000 for married couples filing jointly) pay an additional 0.9% Medicare surtax.

Higher Earnings Limits for Working Beneficiaries

If you work while collecting Social Security before reaching full retirement age, your benefits may be reduced temporarily due to the earnings test. The good news is that the income limits are set to rise in 2026.

• Under FRA for all of 2026: You can earn up to $24,480 before benefits are withheld, up from $23,400 in 2025. Above that limit, $1 in benefits is withheld for every $2 earned.
• Reaching FRA in 2026: The limit increases to $65,160, up from $62,160. Above that, $1 is withheld for every $3 earned until the month you reach FRA.
• After FRA: There’s no limit on earnings, and any withheld benefits are eventually restored.

This rule primarily applies to those who continue to work or earn part-time income while receiving early benefits.

Earning Social Security Credits in 2026

To qualify for Social Security benefits, you must earn 40 work credits, which usually takes about ten years. You can earn up to four credits per year based on your earnings.

In 2026, you’ll need to earn $1,890 to receive one credit, or $7,560 for four. That’s an increase of $80 over 2025, when one credit required $1,810 in earnings.

Once you’ve earned 40 credits, adding more won’t increase your benefit. Instead, your benefit is calculated using your average indexed monthly earnings over the course of your career.

Social Security’s Financial Outlook: Insolvency Nears

The Social Security Trust Fund is under pressure. Projections show that it could go bankrupt in just seven years, by 2033.

The 2025 Trustees Report warns that unless Congress acts, benefits may be reduced by approximately 23% once reserves are depleted. For the average retiree, this could result in a significant shortfall requiring an additional $150,000 in savings to maintain current benefit levels.

Without reforms, younger generations, particularly Generation X, will face greater benefit cuts or tax increases. To compensate for a 23% reduction, a Generation X worker would need to save an additional $700 per month for retirement.

Experts warn that each year of delay makes the necessary fixes more painful, which are likely to include a combination of higher taxes, lower benefits, or an increased retirement age.

What Workers and Retirees Should Do

While many of these 2026 changes are automatic, there are some things you can do to protect your retirement income:

• To confirm your earnings history, check your Social Security statement on a regular basis at ssa.gov/myaccount. Mistakes can cut your future benefits.
• When estimating your net Social Security income, consider Medicare costs.
• Prepare strategically for retirement. Delaying benefits increases monthly payments, but people in poor health or with shorter life expectancies may benefit from claiming sooner.
• ndependent savings. Social Security was designed to replace only about 40% of pre-retirement income, so additional savings are required.

The upcoming 2026 Social Security changes reflect modest inflation, higher Medicare costs, and the continued phase-in of the full retirement age of 67. Workers will pay more in Social Security taxes, but they may also earn more while receiving benefits. Meanwhile, the Trust Fund’s looming insolvency emphasizes the need for long-term reform.

Retirees and workers should both stay informed, monitor their earnings records, and plan ahead to ensure that their retirement income remains stable during these changes.

Source: Kiplinger