Social Security Gets a Shake-Up in 2026, and 3 Changes May Surprise Retirees

Globe and Mail

a day ago

Key Points
The maximum taxable earnings limit will increase in 2026, so some workers will have more pay withheld to cover Social Security taxes.
Social Security's full retirement age (FRA) will increase in 2026, so workers born in 1959 will reach FRA at 66 years and 10 months.
Social Security beneficiaries will receive a cost-of-living adjustment (COLA) in 2026; the trustees estimate benefits will increase 2.7%.
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Social Security benefits are often the most important source of income for retired workers. However, many Americans misunderstand aspects of the program, and knowledge gaps can lead to poor financial decisions.
For instance, surveys from DepositAccounts and the Nationwide Retirement Institute suggest most people aged 45 to 60 think Social Security will run out of funding in their lifetimes. But the program is primarily funded by payroll taxes, so it can't run out of funding unless all Americans stopped working.
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Nevertheless, hundreds of thousands of workers claim retirement benefits as soon as possible (i.e., age 62) each year. Some choose this because they mistakenly believe Social Security is headed for bankruptcy. However, that strategy generally backfires because starting Social Security at the earliest claiming age will result in a permanently reduced benefit.
Changes are made to Social Security each year to keep benefits aligned with inflation and wages. Here are three changes coming in 2026 that may surprise some retirees.
1. Some workers will pay more in Social Security taxes in 2026
Nationwide Retirement Institute reports 74% of surveyed adults incorrectly marked the following statement false: "Workers pay Social Security taxes on all of their income." That is a common misconception. While the program receives most revenue (more than 90%) from a payroll tax deduction, the amount of income subject to that tax is limited by law.
Importantly, the maximum taxable earnings limit generally increases each year to account for increases in the average wage. For instance, the payroll tax applies to $176,100 in 2025, which is up from $168,000 in 2024.
Workers generally owe 6.2% of earnings below the maximum, but any income above the limit isn't taxed. Someone who makes $200,000 this year will owe the same amount as someone who makes $2 million.
The Social Security Board of Trustees estimates the maximum taxable earnings limit will be $183,600 in 2026, in which case, the maximum amount someone could owe in taxes would be $11,383.20, up from $10,918.20 in 2025. Consequently, anyone with earnings above the taxable maximum in both years will owe an extra $465 next year.
2. Social Security's full retirement age will increase in 2026
MassMutual reports that 45% of adults nearing retirement do not know their full retirement age (FRA), which is the age at which workers receive their full Social Security benefit amount (also called the primary insurance amount). Workers who claim Social Security before FRA will get a smaller benefit, and those who claim after FRA (but no later than age 70) will get a bigger benefit.
In 1983, Congress passed a series of amendments to keep the Social Security Trust Funds solvent, one of which gradually raised the FRA from 65 to 67 over a 22-year period, which started with workers who turned 62 in 2000. The impact of that change is still rippling through the population today. For instance, workers born in 1959 will reach FRA at 66 years and 10 months next year. And workers born in 1960 will reach FRA at 67 in 2027.
3. Social Security benefits will get a cost-of-living adjustment (COLA) in 2026
Nationwide Retirement Institute reports 66% of surveyed adults incorrectly marked the following statement false: "Social Security is not protected against inflation." But benefits are indeed protected from inflation by cost-of-living adjustments (COLAs) that have been paid out annually since 1975.
The Social Security Board of Trustees estimates retired workers will receive a 2.7% COLA in 2026. In that scenario, the average monthly benefit would increase from about $2,007 in July 2025 to $2,061 in January 2026. That means the average retired worker would receive an additional $54 per month, or $648 for the full year.
COLAs are based on how the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)) changes in the third quarter of the previous year. For instance, CPI-W inflation measured 2.5% in the third quarter of 2024, so Social Security benefits increased 2.5% in 2025. The third quarter ends in September, so the Social Security Administration won't announce the official COLA for 2026 (or finalize any other change I've discussed) until mid-October.
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