In 2026, Social Security recipients may face a modest cost-of-living adjustment (COLA), despite ongoing high inflation levels. This forecast anticipates a slight increase in benefits, but not as high as the previous year.
Projected COLA Increase for 2026
The Senior Citizens League predicts that the COLA for 2026 will be around 2.3%, based on the expectation that inflation will decline over the next year.
Another projection, provided by independent Social Security and Medicare expert Mary Johnson, suggests the COLA may be slightly lower at 2.1%.
Both figures are lower than the 2.5% COLA observed in 2025. The official COLA rate for 2026 will be confirmed and announced in October.
Understanding COLA: A Necessary Adjustment, Not a Raise
It is important to note that COLA is not a raise but an adjustment designed to help the approximately 67 million Social Security beneficiaries keep pace with inflation. This adjustment ensures that the purchasing power of recipients does not diminish due to rising consumer prices.
The average Social Security check currently amounts to $1,976 per month, as reported by the Social Security Administration.
Economic Context: Inflation Trends and Impact
In January 2025, consumer prices saw an uptick, with the consumer-price index rising by 0.5%, marking the largest increase since the summer of 2023. Economists had projected only a 0.3% increase for the month, indicating higher-than-expected inflation.
The annual inflation rate for the past year edged up to 3%, compared to 2.9% in the previous period. This remains significantly higher than the Federal Reserve’s target of 2% inflation.
| Economic Indicator | January 2025 | Previous Year |
|---|---|---|
| Consumer Price Index | 0.5% Increase | 0.3% Expected |
| Annual Inflation Rate | 3% | 2.9% |
Proposed Tax Elimination for Social Security Benefits
Recently, lawmakers, including U.S. Rep. Thomas Massie from Kentucky, reintroduced the Senior Citizens Tax Elimination Act.
This proposed legislation aims to eliminate the tax on Social Security benefits, which currently applies to both the contributions made by workers and the benefits they later receive. Under the present tax system, individuals effectively pay taxes twice on the same income.
Potential Savings for Seniors
If enacted in 2025, the Senior Citizens League estimates that this legislation could save the typical senior household approximately $3,000 annually—which represents about 5% of their typical budget.
Shannon Benton, the executive director of the Senior Citizens League, expressed support for the bill, emphasizing that eliminating taxes on Social Security benefits would offer much-needed financial relief for seniors who are facing rising living costs. Benton also argued that this move would help reduce the issue of double taxation, which is perceived as unfair.
The Need for Further Reforms
Benton pointed out that the financial pressures on seniors, especially those with lower incomes, remain significant.
Many seniors already struggle with the erosion of buying power, having lost approximately 20% of their purchasing capacity over the past 15 years due to insufficient COLAs.
For low-income seniors, particularly those who don’t make enough to pay taxes on their Social Security benefits, the only viable solution may be to reform COLAs to better reflect inflation rates.
Impact of Senior Citizens Tax Elimination Act
The Senior Citizens Tax Elimination Act is projected to recover about 69% of the buying power lost by Social Security recipients since 2010 due to inadequate COLAs.
| Estimated Loss in Buying Power (Since 2010) | $4,442 |
|---|---|
| Average Yearly Social Security Benefits | $4,442 Less Today |
Impact on Social Security Trust Funds
However, there is a trade-off to consider. In 2023, the Social Security and Medicare Hospital Insurance trust funds collected nearly $86 billion from taxes.
Removing taxes on Social Security benefits would place additional pressure on these trust funds, which are already on track to be depleted by 2035.
At that time, unless Congress acts, beneficiaries may receive only 83% of their promised benefits.
FAQs
What is COLA in Social Security?
COLA stands for Cost-of-Living Adjustment, an annual increase in Social Security benefits to help recipients keep up with inflation.
How is the COLA for 2026 calculated?
The COLA is typically based on the consumer-price index (CPI), reflecting the changes in the cost of goods and services.
Will the Senior Citizens Tax Elimination Act pass?
It’s uncertain. However, if passed, it would eliminate taxes on Social Security benefits, saving seniors an estimated $3,000 annually.