Starting January 2026, several key updates will take effect in the Social Security system. These adjustments will impact benefit amounts, retirement age rules, taxes, and the minimum income workers must earn to qualify for future benefits.
Cost-of-Living Adjustment (COLA): 2.8% Increase
The Social Security Administration (SSA) announced a 2.8% COLA for 2026 on October 24. This modest boost follows a 2.5% increase in 2025 and is one of the smallest raises since 2020. The COLA reflects inflation trends measured by the Consumer Price Index (CPI).
Higher COLAs help retirees keep up with inflation, but they also indicate that living costs, particularly for housing and healthcare, are rising. For 2026, the average retiree will receive about $2,071 per month, up from $2,015 in 2025. Married couples will see an average increase from $3,120 to $3,208.
However, the benefit increase will be partially offset by higher Medicare Part B premiums, projected to rise by $21.50 to $206.50 per month. After this deduction, the average retiree’s net gain from the COLA will be about $34.50 per month. This means roughly 40% of the increase will be absorbed by Medicare costs.
The COLA announcement was delayed from its original October 15 release date because of a government shutdown. The shutdown temporarily halted data processing at the Bureau of Labor Statistics (BLS). Some BLS employees were recalled to finalize the CPI data necessary for the COLA calculation.
Full Retirement Age (FRA) Increases
The full retirement age (FRA), the age when you can claim 100% of your benefits, continues to rise 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 marks the final step in the phased increase from age 65 to 67, designed to reflect longer lifespans and reduce financial strain on Social Security.
Retiring early at age 62 will permanently reduce benefits: 5/9 of 1% for each month before FRA (up to 36 months), and 5/12 of 1% for each additional month. Conversely, delaying benefits beyond FRA increases them by 8% per year until age 70, thanks to delayed retirement credits.
Working longer also boosts benefits by adding more high-earning years to your record. The SSA uses your 35 highest earning years to calculate your benefit amount.
Higher Social Security Tax Cap
Each year, the SSA sets a limit on how much of a worker’s income is subject to Social Security taxes. For 2026, that taxable wage cap rises to $184,500, up from $176,100 in 2025.
Employees and employers each pay 6.2% of wages up to that limit, while the self-employed pay 12.4%. The total maximum Social Security tax for 2026 will be $11,439.
Unlike Social Security, Medicare taxes apply to all wages, with no income cap. Workers pay 1.45%, and those earning above $200,000 (or $250,000 for married couples filing jointly) owe 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 temporarily reduced through the earnings test. The good news: the income limits 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 mainly affects those who continue to work or have 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 typically takes about 10 years. You can earn up to four credits each year based on your income.
In 2026, you’ll need to earn $1,890 to receive one credit — or $7,560 for four credits. That’s an $80 increase from 2025, when one credit required $1,810 in earnings.
Once you’ve earned the 40 credits, additional ones don’t increase your benefit amount. Your benefit is instead calculated based on your average indexed monthly earnings during your career.
Social Security’s Financial Outlook: Insolvency Nears
The Social Security Trust Fund is under strain. Projections show it could become insolvent in just seven years — by 2033.
The 2025 Trustees Report warns that, unless Congress acts, benefits may need to be cut by about 23% once reserves are depleted. For a typical retiree, this could mean a significant shortfall requiring an extra $150,000 in savings to maintain current benefit levels.
Without reforms, younger generations — especially Gen X — will face steeper benefit cuts or tax hikes. To offset a 23% reduction, a Gen X worker would need to save about $700 per month more toward retirement.
Experts warn that every year of delay makes the necessary fixes more painful, likely involving a combination of higher taxes, lower benefits, or a raised retirement age.
What Workers and Retirees Should Do
While many of these 2026 changes are automatic, there are steps you can take to protect your retirement income:
- Check your Social Security statement regularly at ssa.gov/myaccount to verify your earnings record. Mistakes can reduce your future benefits.
- Factor in Medicare costs when estimating your net Social Security income.
- Plan strategically for retirement age. Delaying benefits increases monthly payments, but those in poor health or with shorter life expectancies might benefit from claiming earlier.
- Save independently. Social Security was designed to replace only about 40% of pre-retirement income — supplemental savings are essential.
The upcoming 2026 Social Security changes reflect modest inflation, higher Medicare costs, and the continued phase-in of the full retirement age to 67. Workers will pay more in Social Security taxes, but they can also earn more while collecting benefits. Meanwhile, the looming insolvency of the Trust Fund underscores the need for long-term reform.
Retirees and workers alike should stay informed, monitor their earnings records, and plan ahead to ensure their retirement income remains stable amid these shifts.
Source: Kiplinger