The U.S. Cost-of-Living (COLA) prediction for 2026 is out and Social Security beneficiaries want to know how much their benefits will be going up by next year. There’s good news and bad news for the millions of Americans who rely on these monthly payments, and retirees make up the group most affected by the effects of inflation.
The fresh Trump administration’s decisions will also impact senior citizens’ lives, and they have been waiting for clarity. You will find more information on the COLA, inflation, and the Republicans’ stance on Social Security taxes below.
The annual COLA and how it affects Social Security benefits
As of the end of 2024, more than 68 million Americans were receiving some form of benefits payment from the Social Security Administration each month.
The SSA was formed in 1935 and administers a number of federal programs. These are the main ones:
- Retirement benefits
- Disability benefits (SSDI)
- Survivor benefits
- Supplemental Security Income (SSI)
- Medicare
The amount that recipients are paid depends on a range of factors and eligibility criteria, but each year, the Cost-of-Living Adjustment (COLA) is applied. This is a percentage increase in benefits across the board from January and it’s usually finalized in October of the year before.
Not everyone is happy with how the annual COLA is calculated, saying it doesn’t reflect the true impact of inflation. Economically vulnerable groups such as the elderly are more affected by inflation, yet the prevailing opinion is that the COLA makes no allowance for their financial pressure.
Social Security has existed for decades, and in 1984, the amount that beneficiaries were paid was a fraction of what it is now.
The COLA forecast for 2026 and the impact of inflation on retirees
The COLA for 2026 is predicted to be the lowest in five years, which is bad news, on the surface. However, experts predict a significant drop in inflation in the United States, which means more money is left in the average citizen’s pocket.
Unfortunately, when specifically considering retirees, their most important expenses are rising at a rate above the projected Cost-of-Living Adjustment for next year.
For most retirees, Social Security benefits are a vital source of income, and for many, it’s their only source of income. In 2022, the program raised 22.7 million people above the federal poverty line, and 16.5 million of them were adults aged 65 and above. A poll conducted by the senior advocacy group The Senior Citizens League (TSCL) discovered that 67% of seniors depend on Social Security for more than 50% of their income.
The COLA for 2026 is expected to be 2.1%
After looking at recent CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) data and the December 2024 inflation report from the U.S. Bureau of Labor Statistics, TSCL predicts that the 2026 COLA will be around 2.1%.
The bad news is that this will be the lowest COLA in five years. However, the good news is that it’s in line with the economy settling down after the upheaval of the COVID-19 pandemic, and we’ll see the cost of goods and services rising less rapidly.
What can Donald Trump do to relieve financial pressure on retirees?
There’s a way for the fresh Republican administration under President Donald Trump to support seniors, and that’s by following through on its plan to do away with Social Security taxes. The TSCL estimates that this could save a typical retiree approximately $3,000 a year, which works out to around 5% of the average senior’s budget.
Shannon Benton, Executive Director of The Senior Citizens League, says Congress needs to do more, faster:
“Inflation slowing down doesn’t mean that seniors are catching up. It’s essential that Congress acts quickly to fix years of sub-par COLAs and help give seniors the quality of life they deserve. The Trump administration’s plan to eliminate taxes on Social Security benefits would make a massive difference. The current thresholds used to determine if you’ll pay taxes on your benefits were set up back in the 1980s, and we’ve never adjusted them for inflation.”
While the news about the COLA is a mixed bag in terms of a low increase but accompanied by low inflation, there’s hope that the Republicans’ suggestion to eliminate taxes comes to pass, which will go a long way toward easing the lives of senior Americans in vulnerable low-income groups.
There are other ways for retirees to maximize their available funds, and one of these is by living in a state where taxes don’t cut into anyone’s retirement income. There are 13 states that don’t tax Social Security benefits.