Several key updates 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 to qualify for future benefits.

2.8% COLA Increase

The Social Security Administration (SSA) announced a 2.8% COLA for 2026 on October 24. This modest increase comes after a 2.5% increase in 2025 and is one of the smallest raises since 2020. The COLA reflects inflationary trends as measured by the Consumer Price Index (CPI).

Higher COLAs help retirees keep up with inflation, but they also show that living expenses, particularly for housing and healthcare, are rising. In 2026, the average retiree will receive approximately $2,071 per month, up from $2,015 in 2025. Married couples will receive an average increase of $3,120 to $3,208.

However, 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 will receive a net COLA gain of approximately $34.50 per month. This means that Medicare will cover approximately 40% of the increase.

The COLA announcement was pushed back from its original October 15 release date due to a government shutdown. The shutdown caused a temporary halt in data processing at the Bureau of Labor Statistics (BLS). Some BLS employees were recalled to finalize the CPI data required for the COLA calculation.

Full Retirement Age (FRA) Increases

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

Born in 1959: FRA will reach the age of 66 years and 10 months in November 2025.
Born in 1960 or later: FRA will reach 67 in November 2026.¹

This is the final step in the phased increase from age 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 before FRA (up to 36 months) and 5/12 of 1% for each additional month. Delaying benefits beyond the FRA, on the other hand, increases them by 8% per year until age 70 due to delayed retirement credits.

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

Higher Social Security Tax Cap

Every year, the SSA establishes a limit on how much of a worker’s income is subject to Social Security taxes. In 2026, the taxable wage cap is raised to $184,500, up from $176,100 in 2025.

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

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

Higher Earnings Limits for Working Beneficiaries

If you work while collecting Social Security before reaching the full retirement age, your benefits may be temporarily reduced due to the earnings test. The good news is that the income limits will 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 affects those who continue to work or earn a part-time income while receiving early benefits.

Earning Social Security Credits in 2026

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

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

Additional credits do not increase your benefit amount after you have earned the first 40. Your benefit is calculated using your average indexed monthly earnings over your career.

Social Security’s Financial Outlook

The Social Security Trust Fund is under strain. Projections indicate that it could become insolvent in just seven years, by 2033.

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

Without reforms, younger generations, particularly Generation X, will face larger benefit cuts or tax increases. To offset a 23% reduction, a Gen 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 will most likely 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, you can take the following steps 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 Social Security changes for 2026 reflect modest inflation, higher Medicare costs, and the continued phase-in of the full retirement age of 67. Workers will pay higher Social Security taxes, but they can also earn more while receiving benefits. Meanwhile, the Trust Fund’s looming insolvency highlights the need for long-term reform.

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

Source: Kiplinger

↩︎