Social Security's 2026 COLA Could Be the Worst in Years, but Millions of Retirees Will Get a Big Financial Boost Anyway
As inflation has slowed, COLAs have come down in recent years.
However, millions of retirees who are at least 65 should see significant savings from recent legislation.
The $23,760 Social Security bonus most retirees completely overlook ›
Each year, millions of retirees wait anxiously for the Social Security Administration (SSA) to announce the new annual cost-of-living adjustment (COLA). The COLA determines how much Social Security benefits will increase the following year and helps retirees, many of whom rely on Social Security for all or a significant part of their income, budget for the following year.
While it's still months before the 2026 COLA is announced, recent data suggests retirees could be looking at the lowest COLA in years. However, millions of retirees will get a big financial boost anyway.
The COLA is always determined based on inflation data from the third quarter of each year. Unlike the broader market, which relies heavily each month on the Consumer Price Index for All Urban Consumers (CPI-U), the SSA relies on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). While the CPI measures the change in prices for 93% of the U.S. population, the CPI-W only covers about 29% of the population and measures expenses more common to the blue-collar workforce.
To calculate the following year's COLA, the SSA looks at the year-over-year percentage change for the average CPI-W in July, August, and September. Here are the last four COLAs:
2022: 5.9%
2023: 8.7%
2024: 3.2%
2025: 2.5%
In recent months, data has pointed to slowing inflation. The monthly year-over-year change in the CPI-W has gone from 2.97% in January to 2.17% in May. There's still time before the data that actually counts toward the COLA comes into play, and factors like tariffs have the potential to make inflation change course.
But if the CPI-W stays on its current trajectory, retirees are looking at the worst COLA in five years. COLAs are a bit of a double-edged sword because retirees also benefit from a cheaper cost of living, but many argue that COLAs have not been able to keep pace with inflation since the turn of the century.
Recently, another factor will come into play that's going to help people who are at least 65 years old: President Donald Trump's "big, beautiful bill," a large budget reconciliation package. The primary goal of the legislation is to pass trillions in tax cuts and allocate funds for border security, but such a large bill includes many other provisions.
The big one for retirees is a $6,000 additional senior tax deduction, or $12,000 for joint filers. To be clear, this is not aimed specifically at retirees collecting Social Security but anyone who is 65 or older, regardless of whether or not they receive Social Security benefits. To be eligible for the full deduction, single filers can make no more than $75,000, while joint filers can make no more than $150,000. The deduction completely phases out at $175,000 for single filers and $250,000 for joint filers.
According to an analysis conducted by the White House's Council of Economic Advisers, the bonus deduction stands to benefit millions of Americans who receive Social Security benefits and pay taxes on them.
Citing U.S. Treasury data, the Council found there were 58.5 million people age 65 and over receiving Social Security benefits in 2024. Of this group, 37.4 million received exemptions and deductions that exceeded their taxable Social Security income. With the new bonus deduction, this number will jump by over 14 million to 51.4 million, representing 88% of beneficiaries who are 65 or older and receiving Social Security.
The deduction is temporary. It will go into effect next year (for the 2025 tax bill) and last through the 2028 year's taxes. The tax savings for a married couple with $100,000 of income could be roughly $1,600 per year, according to The Wall Street Journal.
The average monthly benefit of a retired worker in May was $2,002, or about $24,024 a year. Assuming both people in a marriage receive that benefit (for a total of $48,048), the savings will amount to roughly 3.3% of the married couple's combined average benefits. That is equal to the average COLA since 1975 and above the average 2.6% COLA since the turn of the century. Remember, these savings are in addition to the 2026 COLA, whatever it ends up being.
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income.
One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.The Motley Fool has a disclosure policy.
Social Security's 2026 COLA Could Be the Worst in Years, but Millions of Retirees Will Get a Big Financial Boost Anyway was originally published by The Motley Fool
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
13 minutes ago
- Yahoo
Trump rebukes Goldman's Solomon and bank's economics research on tariff impact
(Reuters) -U.S. President Donald Trump said on Tuesday consumers are not paying the costs of tariffs, countering a recent Goldman Sachs' research division estimate that they had absorbed 22% of the costs through June. "It has been shown that for the most part, consumers aren't even paying these tariffs, it is mostly companies and governments, many of them foreign picking up the tabs," Trump wrote in a post on social media platform Truth Social. "But David Solomon and Goldman Sachs refuse to give credit where credit is due." Trump did not specifically mention which Goldman report he was referring to. The Wall Street investment bank declined to comment on the matter. U.S. consumers had absorbed 22% of tariff costs through June and their share will rise to 67% if the recent tariffs follow the same pattern as the earliest ones, Goldman Sachs Economics Research said in a note published on August 10. "This implies that U.S. businesses have absorbed more than half of the tariff costs so far but that their share will fall to less than 10%," analysts led by Jan Hatzius said. Hatzius did not immediately respond to a Reuters request for comment. Since February 1, when Trump kicked off trade wars by slapping levies on imports from Mexico, Canada and China, at least 333 companies worldwide have reacted to the tariffs in some manner, as of August 12, according to a Reuters tracker. Tariffs are taxes levied on imported goods to typically protect domestic industries or influence trade policies. Its financial impact can be distributed among manufacturers, retailers and consumers, depending on market conditions and supply-chain dynamics. Economists continue to study how much of the tariff cost is ultimately passed on to consumers through higher prices. Meanwhile, Trump has also been vocal about his complaints concerning corporate policies and operations since he took office in January. He met Intel CEO Lip-Bu Tan on Monday, days after seeking his resignation. Sign in to access your portfolio
Gizmodo
14 minutes ago
- Gizmodo
UFC Boss Says Cage Fight Is Seriously Coming to the White House
An absurd UFC cage fight on the Southern Lawn of the White House looks like it might actually happen. UFC CEO Dana White told The Wall Street Journal sports columnist Jason Gay on Monday that plans for the match are moving forward and he is already picturing fighters 'warming up in the White House.' President Donald Trump first floated the idea back in July, saying it would be one of many celebrations planned for the nation's 250th anniversary in 2026. 'This is so monumental and historical and just such a cool thing,' White told The Wall Street Journal. 'All I care about is the Octagon on the lawn and the fight happening with the backdrop being the White House and the Washington Monument.' And it'll all be broadcast 'probably on CBS,' he added. White confirmed plans for the fight just days after the UFC inked a multibillion-dollar deal with Paramount. The agreement signals a new chapter for the storied media conglomerate, which is now helmed by David Ellison, son of Oracle founder and Trump ally Larry Ellison. Paramount struck a seven-year, $7.7 billion deal with UFC's parent company TKO Group this week for exclusive U.S. media rights to all UFC matches starting next year. The company's streaming service Paramount+ will be the home for 13 major events and 30 'Fight Nights' every year, with some fights also being simulcast on CBS. It's Ellison's first major deal as the leader of Paramount. After years of on-and-off talks, Ellison reached a deal last year to merge his movie studio Skydance Media with Paramount Global, which owns Paramount Pictures, CBS, Nickelodeon, and MTV. The deal was finalized last week. It's still unclear how much the new Paramount will change, but the UFC deal and other recent moves suggest it will have a cozy relationship with the Trump world. In July, Paramount agreed to pay $16 million to settle a lawsuit from Trump accusing the CBS news show 60 Minutes of editing an interview with Kamala Harris. CBS denied any wrongdoing. Stephen Colbert, host of CBS's The Late Show, called the settlement a 'bribe' to the Trump administration to clear the way for the Paramount-Skydance merger, which was being reviewed by the Federal Communication Commission (FCC) at the time. Shortly after, Paramount announced it would end The Late Show next year, insisting the decision was purely financial. The FCC ended up approving the merger last month. As part of getting the agency's approval, Ellison told FCC Chairman Brendan Carr that the company has ended its DEI initiatives and that CBS News would commit to installing a 'truth arbiter' to monitor the company's content for 'bias.'
CNBC
16 minutes ago
- CNBC
Millions of student loan borrowers may be headed for default: Here's who's most at risk—and how to avoid it
Student loan payments can cost borrowers hundreds of dollars each month. But falling behind on those payments may wind up being even costlier. Advocacy organizations and student loan experts have warned of a coming "default cliff" for millions of borrowers who are already behind on payments. The last of the pandemic-era safeguards expired earlier this year, and President Donald Trump's administration has made it clear it is intent on collecting outstanding loans. "We are committed to ensuring that borrowers are paying back their loans, that they are fully supported in doing so," Education Secretary Linda McMahon wrote in The Wall Street Journal in April. Federal student loans enter default when a borrower goes 270 days without payment. The potential wave of defaults is the culmination of a number of circumstances. Borrowers weren't required to make payments from March 2020 until September 2023, but loan servicers were instructed not to report delinquency — missed payments — to credit bureaus until September 2024. That delinquency reporting resumed at the beginning of 2025. Now, borrowers who continue to miss payments risk having their tax refunds withheld and wages garnished. Around 8 million borrowers had loans in default in March 2020, according to Federal Student Aid data. That figure dropped to 5.3 million by March 2025, largely due to Fresh Start, a Biden-era program that allowed defaulted borrowers to have their loans brought back into good standing between April 2022 and October 2024. As of the second quarter of 2025, roughly 10% of student debt was at least 90 days past due, according to Federal Reserve data. Around 13% of loans entered "serious delinquency," or exceeded 90 days past due, in the second quarter. Black and other minority borrowers, those who did not complete a degree or credential, older borrowers, low-income borrowers and other groups are among those most likely to default. Here is the share of borrowers at least 90 days past due on their loans in each state, as of the first quarter of 2025, according to the most recent Federal Reserve data: If you're unsure about the status of your loans, log into your account to see if they're headed toward default or already there. When you default on your student loans, the entire balance comes due immediately, a process known as acceleration. You can get out of default by paying off that balance, but that is not likely a viable option for most borrowers. If you take no action once your loans are in default, you risk having your Social Security payments and tax refunds withheld or your wages garnished. "This can importantly include refundable tax credits, including those that are meant to protect against child poverty, such as the child tax credit and the earned income tax credit," Abby Shafroth, managing director of advocacy at the National Consumer Law Center said in a recent media briefing. You will be barred from accessing any additional federal student aid and your credit score — which would likely already be damaged from the missed payments — can take another hit. "Borrowers who struggle to afford their payments [who wind up] in default can then sort of paradoxically be compelled to repay more each year, and more in total over the life of the loan, than if they'd not fallen into default," Shafroth says. The combination of acceleration, wage garnishment and Treasury offset could have a borrower paying more in the short-term and in total than they would have on an income-driven repayment plan, Shafroth says. Borrowers may also face collection fees and interest capitalization which is when the interest owed gets added to the principal balance. They also lose access to income-driven repayment plans and any loan forgiveness they may have otherwise qualified for. To get out of default, you'll need to either pay off the balance or enter loan rehabilitation. In loan rehabilitation, you'll negotiate a payment plan with your servicer and be required to make nine consecutive, on-time payments. Your monthly payment can be as low as $5 during this period, depending on your income, according to Federal Student Aid. However, your wages may still be garnished and won't count toward your payment progress during rehabilitation. Once your loans are rehabilitated, they are considered in good standing and you may once again apply for income-driven repayment plans. If you're struggling to make your student loan payment, try to contact your loan servicer as soon as possible to see what your options are. The first line of defense for many borrowers is enrolling in an income-driven repayment plan. Your payment can be as low as $0 a month depending on your income when you enroll. However, if you have explored those options, you should consider applying for a deferment or forbearance, Shafroth says. Deferment and forbearance both pause mandatory payments for borrowers in certain financial situations like unemployment or major medical treatments. Borrowers need to apply through their loan servicer and demonstrate their financial need in order to be granted either option and interest may continue accruing if your request is approved. "Those temporarily pause payments, they're not a long-term solution, but they're a good temporary solution," she says.
