Every fall, the Social Security Administration quietly makes a decision that affects the monthly income of over 70 million Americans. It’s called the Cost-of-Living Adjustment — or COLA — and in 2026, it’s rising by 2.8%.
Now, that number might seem small. But if you’re retired, planning for retirement, or advising those who are, this update could make a real difference in your financial strategy. Let’s break down what it means and what you should be doing next.
First, What Is a COLA?
Think of COLA as inflation’s counterweight. As the cost of groceries, gas, healthcare, and housing rise, your fixed Social Security benefits could lose purchasing power. A COLA helps your benefits “keep up” with the real-world cost of living.
But here’s the kicker — COLAs aren’t guaranteed every year. The Social Security Administration only increases benefits if inflation, measured by a specific index, has risen enough to justify it.
That index is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Each October, the SSA compares the average CPI-W from the third quarter of the current year to the third quarter of the last year a COLA was paid. If there’s an increase, that becomes the new COLA.
For 2026, the CPI-W showed a modest rise between Q3 2024 and Q3 2025, triggering the 2.8% bump.
When Will You See the Increase?
The new COLA takes effect January 2026.
If you’re receiving Social Security benefits, you’ll notice a higher payment starting then. For example, if you’re currently receiving $2,000 a month, your benefit would increase to about $2,056. It’s not a windfall — but it’s something.
But Is 2.8% Enough?
Now, here’s where things get real. While 2.8% is above the historical average COLA over the last 25 years, it may still not be enough to outpace the rising costs of essentials like healthcare and housing.
Let’s consider Bob — a fictional but familiar character we work with often at JS Morlu. Bob’s a retired lamp mogul living in Northern Virginia. Between higher property taxes, grocery bills, and rising Medicare premiums, his expenses went up 5% in the past year.
Even with the COLA boost, Bob’s purchasing power still takes a hit. That’s why COLA should be treated as a safety valve, not a raise. It’s meant to help maintain — not improve — your standard of living.
Why It Matters to Your Financial Plan
A higher Social Security benefit might look good on paper, but it comes with potential ripple effects that need your attention:
1. Tax Planning Implications
COLA increases can push retirees into higher tax brackets — especially when combined with required minimum distributions (RMDs), pensions, or investment income. That “extra” $50 a month could increase the taxable portion of your benefits.
What You Can Do:
Consider timing your distributions or using strategies like Roth conversions to control your taxable income. Our team helps clients forecast these changes in advance, so you’re not caught off guard.
2. Medicare Premium Adjustments
Social Security income affects your Medicare Part B and D premiums through something called IRMAA (Income-Related Monthly Adjustment Amounts). More income could mean higher premiums — reducing the benefit of the COLA increase.
What You Can Do:
We recommend a Medicare IRMAA impact review. Reducing MAGI through charitable giving or retirement planning strategies can help.
3. Estate and Retirement Planning
Even modest income changes can affect estate tax thresholds, gifting strategies, or eligibility for other credits and deductions. For high-net-worth individuals, this makes year-end planning especially important.
What You Can Do:
Now’s the time to revisit your estate and trust strategies. That includes ensuring any planned gifting aligns with your updated income and tax outlook.
JS Morlu’s Take: Don’t Let the COLA Be Your Only Adjustment
At JS Morlu, we believe COLA updates should serve as a financial wake-up call. They’re a reminder that even if government programs are adjusted for inflation, your broader financial picture needs a tune-up too.
We recommend using this announcement to:
- Reevaluate your retirement income plan
- Review your tax withholding or estimated payments
- Adjust investment withdrawal strategies
- Rebalance your portfolio if inflation is likely to persist
Whether you’re a retiree, business owner planning an exit, or a high-net-worth individual managing legacy wealth, changes like this are your cue to take action.
How JS Morlu Can Help
We’re more than tax preparers — we’re strategic financial advisors who help you:
- Optimize your retirement income stream
- Reduce tax burdens through forward-looking planning
- Protect your legacy with customized estate strategies
- Navigate Medicare, IRMAA, and Social Security with clarity
If you’re wondering how this COLA increase impacts your 2026 financial picture, let’s talk.
📞 Schedule your year-end tax strategy session now
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At JS Morlu, we don’t just react to tax code changes. We help you turn them into strategic opportunities.