Bob Dylan was right when he sang "The Times They Are a-Changin'." Retirees will soon see his lyrics borne out as 2026 begins.
Each new year brings changes to the Social Security program. Those changes can be positive – but not always. They can also sometimes be painful, at least for some people. Unfortunately, next year will usher in one Social Security change in the latter category that will hurt retirees the most.
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Several major Social Security changes
One major Social Security change coming in the new year won't impact most retirees. The maximum amount of earnings subject to FICA taxes, which help fund Social Security, will increase to $184,500. This taxable maximum for 2025 is $176,100.
Speaking of the amount of money subject to taxes, many retirees won't have to pay as much federal tax on their income beginning next year, including income from Social Security benefits. An enhanced tax deduction for seniors aged 65 and older will take effect in 2026. Although this tax deduction doesn't only apply to Social Security retirement benefits, many retirees won't have to pay federal taxes on those benefits as a result of the change.
The Social Security Administration (SSA) estimated that "nearly 90% of Social Security beneficiaries will no longer pay federal income tax on their benefits." However, the Tax Policy Center's analysis concluded that most seniors won't see their taxes eliminated but will pay a lower amount. This tax deduction, by the way, expires in 2028.
Another Social Security change that could benefit some retirees is the increase in the earnings limit. When a person begins collecting retirement benefits before their full retirement age but continues to work, SSA will deduct $1 in benefits for each $2 earned over a specified earnings limit. This limit will increase to $24,480 in 2026 from $23,400 in 2025.
There's a different earnings limit for the year a person reaches their full retirement age. SSA deducts $1 in benefits for each $3 earned above this limit. In 2026, this threshold will increase to $65,160, up from $62,160 in 2025.
A COLA without enough fizz
Those changes won't hurt most retirees (and two of the changes could help some retirees). However, the Social Security change in 2026 that will hurt the most might be surprising. It's the 2.8% cost-of-living adjustment (COLA).
You might be thinking, "Wait a minute. The COLA gives retirees more money. That isn't a painful change." In many respects, that perspective is correct. However, Shannon Benton, executive director for The Senior Citizens League (TSCL), put it bluntly, "The 2026 COLA is going to hurt for seniors."
The problem with the 2026 COLA is that it almost certainly won't be enough to cover the higher costs incurred by retirees. We're already seeing inflation rates above the 2.8% benefits increase that's on the way.
There's also a more fundamental issue with how the COLA is calculated. The inflation metric used for determining the annual Social Security benefits adjustment is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). One key drawback of the CPI-W is that it doesn't accurately reflect the costs paid by seniors. In particular, it doesn't give enough weight to healthcare expenses.
For example, the standard Medicare Part B premium will increase by 9.7% in 2026. This higher premium will offset a significant portion of the average Social Security benefit increase next year on its own.
Alleviating the pain
Is there anything retirees can do to alleviate the pain of a Social Security COLA that won't be enough? Yes, at least for some.
One option is to review all your expenses and identify areas where you can cut spending. The bad news, though, is that many retirees have already reduced their spending as much as they can.
Another alternative is to look for ways to increase your non-Social Security income. Talk to a financial advisor about potentially taking more money out of your retirement accounts, such as IRAs or 401(k) plans. Some retirees might also be able to find part-time jobs that they like.
There is one thing that all retirees can do, though: take care of their health as much as possible. Exercise, eat healthy, take medications as prescribed, and have regular medical checkups. Healthcare expenses are often one of retirees' biggest expenses. The healthier you are, the less you'll spend on medical costs.
