In the United States, the Cost-of-Living Adjustment (COLA) will affect Social Security beneficiaries. Based on information provided by the US Bureau of Labor Statistics, together with consumer price index data, inflation will continue to rise. Looking ahead to 2026, those who depend on retirement benefits in the country will see an increase in payments. Likewise, tax deductions are intended to alleviate the economic effects this will have. Read on to learn more.
The increase Americans will see, according to Social Security
Millions of Social Security beneficiaries in the United States could see a 2.7% increase in their monthly payments starting in January 2026, according to the most recent projections. This potential cost-of-living adjustment (COLA) would represent a slight increase over the 2.5% granted in 2025 and is based on the latest inflation figures released by the Bureau of Labor Statistics. The annual adjustment aims to ensure that pensions and financial assistance maintain their purchasing power in the face of rising prices. However, some economists warn that the forecast could fall short if inflation picks up toward the end of the year, leaving many retirees with less real purchasing power.
Inflation stable… for now
Since the beginning of 2025, the consumer price index (CPI) has remained at around 3% or below, giving the domestic economy some breathing space. In July, annual inflation stood at 2.7%, the same level as in June. However, experts warn that factors such as new tariffs could push prices up, bringing the overall CPI to around 3.7% in the first half of 2026.
This scenario could make a 2.7% increase in benefits insufficient to cover the rising cost of basic goods and services, especially for those who depend almost entirely on this income. According to recent data, the average payment for retirees in June 2025 was $2,005 per month, which means that a 2.7% adjustment would mean an additional $54 per month.
Beyond COLA: tax benefits for seniors
In addition to the expected increase, some seniors will also be able to benefit from a temporary tax deduction of up to $6,000, provided for in the most recent federal legislation. This measure, valid only for a limited period, seeks to ease the tax burden on Americans aged 65 and over.
The final decision on the 2026 COLA will be announced in October, and its actual impact will depend on how inflation evolves in the coming months. For now, the outlook offers some relief for retirees, but with the caveat that the economy may require more aggressive adjustments in the near future.
The Social Security Trust Fund will be seven years away from facing insolvency
Politicians are ignoring the flashing red lights and increasingly dire insolvency predictions from the Trustees Report and have only acted to hasten the depletion. By increasing benefits for some with the passage of the Social Security Fairness Act (SSFA) and depriving the fund of tax revenue through the new senior deduction included in the One Big Beautiful Bill (OBBB). The deduction will lower the taxable income for some seniors, which can in turn decrease the amount of income tax they pay on their Social Security benefits.
From 2024 to 2025, the date of insolvency has moved up moderately, and the likely reduction in benefits that would be triggered by an insolvency has increased. The reduction in benefits could trigger a 23% cut that would require future beneficiaries to save almost $150,000 to cover the shortfall; aspiring Gen X retirees would need to sock away an additional $701 a month. The longer the issue is ignored, the more drastic the solutions will have to be.
Modifications to Social Security in 2026
These changes don’t only impact retirees — they impact current workers. Workers need to keep an eye on accumulating enough Social Security credits to get benefits, correct errors in their earnings record, and understand how much of their wages will be subject to the 6.2% Social Security tax.
These numbers are estimates; the official limits for 2026 will be announced later in the year, usually in mid-October. The estimates come from the 2025 Social Security Trustees Report and The Senior Citizens League (TSCL), and are subject to change. However, they are good guidelines for early planning. The article will be updated to reflect the latest information from the Social Security Administration (SSA) and official numbers when they become available.
