The Social Security Administration (SSA) provides nearly 70 million beneficiaries with essential payments each month. These payments are often the only source of income for beneficiaries, providing a lifeline of support for beneficiaries to cover their expenses each month. Recently, there has been speculation about what the new cost-of-living adjustment (COLA) statistic will be for next year. The estimates come with recent updates from the May inflation report from the Bureau of Labor Statistics (BLS).
New COLA increases each year for beneficiaries
Each year, SSA beneficiaries await news on what the new COLA figure will be. COLA refers to the percentage increase in beneficiaries’ payments made on account to keep up with increases in the cost of living. The amount is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This year, the new COLA statistic was 2.5%.
While the COLA increase is an important adjustment for SSA beneficiaries, it has been criticized for being rooted in the CPI-W. This is because the CPI-W does not reflect the spending habits of retirees, who make up the bulk of Social Security beneficiaries. COLA essentially underestimates the true cost-of-living expenses for retirees, and the CPI-W is based on the consumer spending habits of people who are employed.
Bad news for SSA retirees on 2026 COLA projection
Based on the BLS’ recent May inflation report, The Senior Citizens League has projected that the new 2026 COLA statistic could be 2.4%, the lowest it has been in five years. Typically speaking, a low COLA is a good thing as it indicates that inflation has remained relatively low and the economy is in good health. However, many beneficiaries feel that the COLA adjustments are not adequately addressing the reality of cost-of-living for seniors, with the increases still leaving seniors with limited purchasing power, and the new Senior Citizens League predictions are not increasing confidence among beneficiaries:
“This year will be a closer year to watch because of the tariffs,” Mary Johnson, an independent Social Security and Medicare analyst, told CNBC
Compounded with the new tariffs imposed by the Trump Administration, the continued cost-of-living rise is causing seniors to face an impending crisis when it comes to covering basic expenses. Since 2010, the buying power of Social Security recipients has decreased by 20% according to the TSCL. Social Security requires new changes and reform to protect seniors, who are among some of the most vulnerable in society.
Official 2026 only to be announced in October
While the new COLA for 2026 will only be announced in October of this year, the low projections juxtaposed against the lived reality of seniors are calling for increased federal intervention to address the cost-of-living crisis beyond what the numbers say. While inflation may appear to be relatively low from a theoretical perspective, working individuals and seniors alike are struggling significantly to cover their expenses.
One way the federal government is proposing to address this is by offering increased tax breaks for Social Security recipients. Nearly half of SSA beneficiaries still pay federal income tax on their benefits. Taxation of Social Security income was originally only intended for top earners, however, the income thresholds for Social Security taxation have not changed in nearly 50 years, meaning that most recipients are being taxed instead of the minority.
While President Trump originally stated that he intended to eradicate taxes entirely for beneficiaries, an alternative proposal appears to be in the works. The House of Representatives recently announced a new piece of legislation for Social Security beneficiaries. If they meet the income requirements, they may be able to claim a $4,000 tax break starting from next year through to 2028. While not quite the tax elimination that beneficiaries hoped for, it will be a significant tax relief for many.
