Social Security 2026 Cola Increase Estimated at 2.3%, the Lowest in Years

The latest Social Security cost-of-living adjustment (COLA) updates mean that tens of millions of retirees could see an average monthly increment of £38.77 ($49) in 2026.

Social Security COLA is a yearly benefit hike based on inflation trends. It is meant to help US seniors retain their purchasing power as the prices of goods and services continue to rise.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is the annual inflationary measure used to calculate the COLA. While the US Bureau of Labor Statistics (BLS) reports CPI-W every month, only the inflation reading from the third quarter of every year is used in COLA calculations.

After BLS released the January inflation report, The Senior Citizens League (TSCL) increased its COLA 2026 estimates to 2.3% from 2.1%, citing a modest reacceleration in the inflation rates.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5% last month, the largest sequential monthly increase since August 2023. On a trailing 12-month basis, it has jumped by 3%.

The latest Social Security 2026 COLA estimate is the lowest since 2022. That year, Social Security COLA increased 5.9%, followed by an 8.7% hike in 2023. In 2024 and 2025, COLA raises were 3.2% and 2.5%, respectively.

If the current projections hold, the monthly average Social Security cheque size for retired workers will rise from £1,565 ($1,979) to above £1,582 ($2,000) for the first time in history.

Eliminating Taxes On Social Security Benefits Would Bump Savings By $3K

The TSCL forecasts that eliminating taxes on Social Security Benefits would save senior households an average of £2,373 ($3,000) annually.

Congressman Thomas Massey re-introduced a bill to eliminate income taxes on these benefits. The bill, Senior Citizens Tax Elimination Act, was initially floated in 2023 and is expected to considerably lower the tax burden of many US senior citizens. This development aligns with US President Donald Trump's pledge to eradicate taxes on Social Security benefits.

If implemented in 2025, tax cuts on benefits would also somewhat compensate for the lagging COLAs. Furthermore, the proposed Act would also lower 'double taxation' on seniors, as they paid taxes on their Social Security contributions via payroll tax and also pay taxes again on their benefits under existing laws.

'Eliminating taxes on Social Security benefits would be an excellent step to provide financial relief to American seniors, many of whom are struggling with a cost of living that is growing much faster than their incomes. It would also reduce double taxation, which is inherently unjust, said TSCL Executive Director Shannon Benton.

Note that many low-income seniors might not see the impact of the proposed Act as beneficiaries who earn below specific amounts already don't pay taxes on their benefits.