Making poor decisions often comes from ignorance or misunderstanding. That’s why having accurate knowledge about a subject is crucial in order to make wise choices. Social Security plays a vital role in the financial stability of millions of Americans, yet many people lack a full understanding of how it works and end up making costly mistakes.
One of the most common misconceptions is that Social Security funds will be completely depleted by 2034. It’s important to remember that Social Security is primarily funded through payroll taxes. Unless Americans were to stop working entirely, the program would still have revenue to pay benefits, though potentially at reduced levels.
As 2025 draws to a close, the changes coming in 2026 are becoming clearer. Here’s what to know:
Modest Boost to Monthly Benefits: The 2026 COLA
In January 2026, retirees are expected to see a slight increase in their Social Security checks. Based on current inflation data, the cost-of-living adjustment (COLA) is projected to be about 2.7%, up from 2.5% in 2025.
For example, someone receiving a monthly benefit of $2,000 would see an extra $54.18 per month, or roughly $650 annually. While this is an increase, it may not fully offset rising costs in today’s economy.
The official COLA announcement will come in mid-October 2025, once third-quarter inflation data is finalized.
Changes in Tax Rules on Benefits
Looking beyond 2026, the Social Security Administration (SSA) projects changes in how benefits are taxed. Starting in 2026, taxes on Social Security benefits will be aligned more closely with how private pensions are taxed. According to SSA, income thresholds will gradually be phased out through 2045. For instance, the taxation threshold could rise to $50,000 for single filers and $100,000 for married couples.
Another frequent misunderstanding is that Social Security taxes apply to all earnings. In reality, taxes are only collected on income up to a wage cap. That cap adjusts each year based on wage growth:
- 2024: $168,000
- 2025: $176,100
Earnings above that amount are not subject to the 6.2% Social Security tax. The Trustees expect the cap to rise again in 2026.
Retirement Age Shifts and What They Mean
Back in 1983, Congress approved a gradual increase in the full retirement age (FRA). As of 2026, the FRA will reach 67 years for everyone born in 1960 or later. Retirees who claim before reaching FRA will face a permanent reduction in their monthly benefits, while waiting until age 70 can significantly boost payments.
What It All Means for You
Together, these adjustments paint a mixed picture for 2026:
- A modest COLA of around 2.7% will help offset inflation.
- Gradual tax changes will mostly affect higher-income beneficiaries.
- A higher FRA makes delaying benefits more advantageous.
In simple terms, staying informed about these changes is essential to making sound financial decisions.
Planning Ahead for 2026 and Beyond
Workers who understand these rules can better prepare for retirement and avoid mistakes when filing for benefits.
Despite funding challenges, Social Security remains a critical source of income for tens of millions of Americans—and will continue to be a cornerstone of retirement planning in 2026 and beyond.