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Social Security COLA: Good News, Bad News for Retirees
WASHINGTON D.C. – Retirees hoping for a little extra wiggle room in their monthly budget received a mixed bag of news regarding the upcoming Social Security cost-of-living adjustment (COLA). While a projected increase of 2.7% to 2.8% for 2026 is on the horizon, the official announcement has been delayed until October 24 due to the recent government shutdown impacting the release of crucial inflation data.
This anticipated bump, though welcome, comes with its own set of challenges, as rising costs for essentials like healthcare continue to outpace benefit increases. Let’s break down what this COLA could mean for your retirement finances.
What Exactly is the Social Security COLA?
The Social Security COLA directly influences the size of your monthly Social Security checks. The Social Security Administration (SSA) utilizes a specific formula, incorporating data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), to determine these annual adjustments. For context, the 2025 COLA was 2.5%, marking one of the lowest increases in recent years.
This upcoming COLA will significantly impact the financial well-being of millions of Social Security recipients. Here’s a look at the potential upsides and downsides:
Pro: Your Monthly Check Will See a Boost
After a relatively modest 2.5% COLA this year, the projected 2.7% to 2.8% increase for next year is certainly a step up. While not a massive leap, any additional funds in your pocket are generally a positive.
Here’s a look at recent COLA increases:
- 2024: 2.5%
- 2023: 3.2%
- 2022: 8.7%
- 2021: 5.9%
- 2020: 1.3%
Con: Healthcare Costs May Still Outpace Your Gains
For many retirees, healthcare expenses are a significant concern, and unfortunately, these costs show no signs of slowing down. From rising Medicare premiums to increasing out-of-pocket medical bills, the growing expense of healthcare can quickly absorb some or even all of your Social Security COLA.
Pro: Future Filers Also Benefit
Even if you’re not currently collecting Social Security benefits, this COLA is good news. Any boost to benefits helps grow the size of future checks for all recipients, potentially alleviating some financial stress down the road for those planning to file in the future.
Con: Inflation Could Still Eat Away at Your Increase
While an increase is always appreciated, it might not be enough to fully combat persistent inflation. The elevated costs of recent years for things like shelter and transportation are unlikely to suddenly disappear.
This means that even with a modest uptick in your Social Security benefit, you might still find yourself struggling to make ends meet as the cost of living continues to rise. A 2.7% to 2.8% bump may not be enough to significantly alter this reality.
Con: A Larger Check Could Lead to Higher Taxes
Here’s a less-than-thrilling prospect: a larger Social Security benefit could potentially push your income into a higher tax bracket. According to the Social Security Administration, approximately 40% of Social Security recipients currently pay federal income taxes on their benefits, typically when they have substantial additional income from sources like wages, self-employment, interest, dividends, or other taxable income.
Your “combined income” – your adjusted gross income plus nontaxable interest and one-half of your Social Security benefits – determines how much of your benefits are taxable. For example, married filers with a combined income between $32,000 and $44,000 may pay income tax on up to 50% of their benefits, while those exceeding $44,000 could see up to 85% of their benefits taxed. If the COLA pushes your combined income higher, a larger portion of your Social Security check could become subject to taxes.
The Bottom Line
Any increase to your Social Security check is generally a positive, offering a bit more breathing room in your budget. However, relying solely on Social Security to cover all your retirement expenses can be challenging.
The good news is that there are many strategies to supplement your Social Security income, from exploring part-time work to developing a side hustle. Taking proactive steps today can help you grow your income and enhance your financial stability throughout your retirement years.