The Social Security Administration has released the inflation adjustments for 2026. Benefits are set to increase by 2.8%. There was a lot of anticipation leading up to the report this year. Many were hoping for a larger adjustment, including some of those in Congress. While I’m always hoping for a big inflation adjustment to help seniors, I think the 2.8% number is reasonable given the current inflation environment. My concern is that while it fairly reflects current inflation statistics, it doesn’t really reflect the past few years of higher inflation, which disproportionately affected seniors and those on fixed incomes. Whenever there is concern over the new Social Security figures, there are inevitably calls for a re-examination of how we measure inflation when deciding on how to index the future benefits.
Currently, we use the CPI-W, which is limited to wage inflation, to help determine how much Social Security benefits should be indexed. That figure came in at 2.9% this year. The most commonly used measure of overall inflation is the CPI-U, which is the Consumer Price Index. That came in at 3.0% and is used for most Federal programs and tax brackets. So why do we not use the more commonly followed measure for Social Security increases? That’s a good question. I assume it is because they view Social Security as income, and therefore, the most logical index to follow is one that tracks wages.
To put this year’s cost-of-living adjustment into context, the average increase has been 2.55% with the range being from 0% in 2016 and a few others, to a high of 8.7% in 2023. The assumed rate for the Social Security trust fund is 2.4%.
Your benefits will be indexed for this amount, regardless of whether or not you are currently taking your benefits. This includes spouse and survivor benefits as well. Current benefit recipients should be notified of the new increase by mail in December or in your SSA.gov portal this week. If you haven’t reviewed your benefits in a while, you should create an online account by visiting https://www.ssa.gov/. You should review your benefit statements and check your earnings history for accuracy. You can even file for benefits online as well.
I strongly recommend that you consult with your advisor before electing your Social Security benefits to help decide when may be the optimal time for you to elect to receive benefits. Making the wrong election or claiming at the wrong time can potentially cost you tens of thousands of dollars over your lifetime. Taking time to get some guidance is well worth it.
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Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
