What the New COLA Means for Your Retirement Income Plan
Each fall the Social Security Administration announces the following year’s cost-of-living adjustment, and every year the same question follows it:
Does the increase actually keep pace with what retirees are spending?
The 2026 COLA raised Social Security and Supplemental Security Income benefits by 2.8%, adding about $56 a month to the average retirement benefit. That is close to the 10-year average of 3.1%, but it followed a smaller 2.5% increase in 2025, and it arrived alongside a Medicare Part B premium that rose nearly 10% for the same year.
What the COLA means for you is not really a question of whether 2.8% is a good number or a bad one. It’s a question of whether your retirement income plan already accounts for how Social Security adjusts each year, what does not adjust with it, and how the difference affects your spending, your taxes, and your withdrawals from savings.
That’s a question best answered inside a full retirement income plan, not by looking at the COLA percentage by itself.
In This Article:
- What is the 2026 Social Security COLA?
- How is the COLA calculated?
- Does the COLA keep pace with retirees’ actual cost of living?
- How does the COLA affect your monthly retirement income?
- Can the COLA increase your taxes?
- How should the COLA affect your portfolio withdrawals?
- What does a realistic COLA example look like?
- Should you adjust your retirement income plan because of the COLA?
- What questions should you ask about the COLA and your plan?
- How can a financial advisor help you use the COLA effectively?
- Frequently Asked Questions
What Is the 2026 Social Security COLA?
The Social Security Administration raised benefits by 2.8% for 2026, effective for payments beginning in January. The increase applies to Old-Age, Survivors, and Disability Insurance benefits as well as Supplemental Security Income. On average, retirement benefits rose by about $56 a month. The same announcement raised the maximum amount of earnings subject to Social Security tax, from $176,100 to $184,500, a change that mainly affects workers who have not yet claimed benefits.
Over the last decade, the COLA has averaged about 3.1%. It was 2.5% in 2025, 3.2% in 2024, and a historically large 8.7% in 2023 following a period of high inflation. A 2.8% adjustment sits close to the long-run average, which is part of why it can feel unremarkable even though it changes the numbers in your monthly cash flow.
How Is the COLA Calculated?
The COLA is set by formula, not by policy choice. Each year, the Social Security Administration compares the average Consumer Price Index for Urban Wage Earners and Clerical Workers, known as the CPI-W, for the third quarter of the current year against the same period the prior year. The percentage increase becomes the following year’s COLA.
The CPI-W tracks a broad basket of goods and services purchased by urban wage earners and clerical workers. It is not built specifically around how retired households spend, which is one reason the COLA and a retiree’s actual cost of living can move at different speeds in a given year.
Does the COLA Keep Pace With Retirees’ Actual Cost of Living?
Not consistently. Healthcare has tended to grow faster than the general CPI-W basket in many years, and healthcare is where retirees spend a disproportionate share of their budget.
The clearest example arrived alongside the 2026 COLA itself. The standard monthly Medicare Part B premium rose to $202.90 for 2026, an increase of $17.90, or just under 10 percent, from $185 in 2025, according to the Centers for Medicare & Medicaid Services. The annual Part B deductible also increased, to $283 from $257.
For many retirees, the Part B premium is deducted directly from the Social Security check before it is deposited. When the premium rises nearly four times faster than the COLA itself, a meaningful share of the announced increase can be absorbed before it ever reaches a bank account.
Housing costs, homeowners and auto insurance, and out-of-pocket medical expenses have also outpaced general inflation in many recent years. A COLA that looks reasonable in a press release does not always translate into a comparable increase in spending power for a given household.
How Does the COLA Affect Your Monthly Retirement Income?
The COLA only adjusts the Social Security portion of your income. Everything else in a typical retirement paycheck follows its own rules.
- Pensions. Many private pensions include no automatic cost-of-living increase at all. Others provide a partial or capped adjustment that may not match the COLA percentage.
- Portfolio withdrawals. Distributions from an IRA, 401(k), or brokerage account do not automatically increase with inflation. Whether your withdrawals rise each year depends entirely on the strategy built into your plan.
- Annuities and other income sources. Adjustment terms vary by contract and should be confirmed individually rather than assumed.
The larger the share of your monthly income that comes from Social Security, the more a given COLA moves your total spending power. For many families, Social Security is one piece of a larger retirement income plan that also draws from investments, which is why the COLA’s real effect on your household is usually smaller, in either direction, than the announced percentage alone would suggest.
Can the COLA Increase Your Taxes?
It can, and this is one of the more overlooked effects of an annual increase.
Whether Social Security benefits are taxable depends on “provisional income,” which is your other income plus tax-exempt interest plus half of your Social Security benefit. For single filers, benefits may become partially taxable once provisional income exceeds $25,000, with up to 85 percent taxable above $34,000. For married couples filing jointly, the thresholds are $32,000 and $44,000.
Those thresholds were set in the 1980s and 1990s and have never been adjusted for inflation, according to the Internal Revenue Service. Because Social Security benefits rise with the COLA every year while the thresholds stay fixed, a growing share of benefits can become taxable over time, even for households whose other income has not changed. This effect compounds quietly, and it is worth reviewing as part of your broader financial plan rather than discovering it at tax time.
How Should the COLA Affect Your Portfolio Withdrawals?
The COLA is a reasonable annual checkpoint for reviewing your withdrawal strategy, but it should not automatically set your withdrawal increase.
Some retirement plans call for withdrawals that rise with inflation every year regardless of market performance. Others use a more flexible approach, adjusting spending based on how the portfolio actually performed. Increasing withdrawals automatically in a year when markets have declined can add to sequence-of-returns risk, which is the danger of withdrawing from a portfolio early in a down market in a way that is difficult to recover from later.
The better question each year is not “Should my withdrawal match the COLA?” but whether your current withdrawal rate, combined with this year’s Social Security increase, still supports your plan under a range of market outcomes. That review belongs inside your investment management strategy, not treated as a separate decision made in isolation.
What Does a Realistic COLA Example Look Like?
Consider a hypothetical retired couple, both receiving Social Security and both enrolled in Medicare Part B, with a combined pre-2026 monthly benefit of $3,200.
| Item | Illustrative amount |
| Combined monthly benefit before COLA | $3,200.00 |
| 2.8% COLA increase | +$89.60 |
| Combined benefit after COLA | $3,289.60 |
| Combined Part B premium increase (both spouses) | −$35.80 |
| Net monthly increase in deposited income | $53.80 |
On paper, the household received an $89.60 increase. After the higher Part B premium is deducted, the net increase to their deposited income is $53.80 a month, before accounting for any change in provisional income, housing costs, or insurance premiums that may also have risen for the year.
This example is hypothetical, uses rounded figures, and is provided only to illustrate the planning process. It does not represent any specific client.
Should You Adjust Your Retirement Income Plan Because of the COLA?
Not automatically, but the COLA announcement each October is a useful, recurring prompt to revisit your plan rather than let it run untouched for another year.
A short annual review can confirm whether your withdrawal rate still fits your spending, whether new Medicare premiums or IRMAA surcharges have shifted your net income, whether more of your Social Security benefit has become taxable, and whether your portfolio allocation still matches your time horizon and risk tolerance. None of these questions can be answered by the COLA percentage alone, but the COLA announcement is a convenient, predictable time to ask them.
What Questions Should You Ask About the COLA and Your Plan?
- How much of my monthly income actually comes from Social Security, compared to pensions, portfolio withdrawals, and other sources?
- Did my Medicare Part B or Part D premiums rise by more than my COLA increase this year?
- Am I subject to an income-related monthly adjustment amount, or IRMAA, surcharge on Medicare?
- Has a larger share of my Social Security benefit become taxable as my income has grown?
- Does my withdrawal strategy already account for years when Social Security and portfolio growth move at different rates?
- If I have a pension, does it include any cost-of-living adjustment, and how does it compare to Social Security’s?
- Has my overall spending changed enough this year to warrant a full plan review rather than a routine check-in?
- Am I confident my plan would hold up if a future COLA were smaller, or zero, for a year or more?
How Can a Financial Advisor Help You Use the COLA Effectively?
The COLA impacts several parts of your financial life at once: your Social Security income, your Medicare costs, your tax return, and your withdrawal strategy. Reviewing it in a vacuum only tells part of the story.
A financial advisor can help you confirm how much of the increase you will actually keep after Medicare premiums and taxes, evaluate whether your withdrawal rate needs to change, review whether more of your benefit has become taxable, and fold all of it back into your broader financial planning process.
At Concenture Wealth Management, our approach to retirement planning is built to account for exactly this kind of moving piece, so an annual announcement like the COLA becomes one input among many rather than a number you have to interpret on your own.
If you want to see how a personalized retirement paycheck comes together, watch our free masterclass on turning savings into reliable retirement income.
Schedule a conversation with Concenture to review how this year’s COLA fits into your retirement income plan.
Frequently Asked Questions
Does everyone receive the same COLA percentage?
Yes. The percentage increase is uniform across all beneficiaries in a given year, though the dollar amount varies based on the size of each person’s benefit.
Is the COLA guaranteed every year?
No. The COLA is tied to inflation and can be zero in years when the CPI-W does not rise from one third quarter to the next. Beneficiaries received no COLA in 2010, 2011, and 2016.
Does the COLA increase reduce my benefit if I am still working?
The COLA itself does not reduce benefits. If you claimed Social Security before your full retirement age and continue to work, a separate earnings test may withhold part of your benefit above certain income limits, but that rule is unrelated to the COLA calculation.
How will I know my exact new benefit amount?
The Social Security Administration mails COLA notices each December, and beneficiaries with a personal my Social Security account can typically view their updated benefit amount online several weeks earlier.
Does the COLA apply to pensions too?
Only if your specific pension plan includes a cost-of-living provision. Many private pensions do not, so it is worth confirming the terms of your own plan rather than assuming it moves with Social Security.
Does the COLA affect medicare premiums directly?
Medicare premiums are set separately by the Centers for Medicare & Medicaid Services and are not determined by the COLA. A federal “hold harmless” provision generally prevents a Part B premium increase from reducing a beneficiary’s net Social Security check below the prior year’s amount, but it does not prevent the premium from absorbing part of the COLA increase itself.
