Next year, retirees will see a 2.8% increase in their Social Security benefits due to an inflation adjustment. But will this be sufficient to counteract the rising cost of living and help seniors maintain their quality of life?
The annual Social Security cost-of-living adjustment, often referred to as COLA, is a hot topic in the fall. However, it’s merely one of the economic factors affecting retirees’ finances.
Older adults are particularly impacted by healthcare-related inflation, which makes changes in Medicare costs just as critical as COLA adjustments.
Looking towards 2026, increasing Medicare costs are anticipated to take a hefty chunk out of COLA. This makes it all the more vital for seniors to carefully review their Medicare plans each fall. Currently, the enrollment period is active and will wrap up on December 7. In other words, focus on what you can control.
Social Security COLA
The 2.8% increase will benefit around 75 million Americans starting in January. This demographic includes retirees, their spouses and survivors, plus individuals receiving disability benefits and Supplemental Security Income.
For the average Social Security recipient, this increase translates to about $56 more each month. Meanwhile, the maximum income subject to Social Security taxes will rise to $184,500.
The COLA calculation is based on the Consumer Price Index for Urban Wage and Office Workers (CPI-W), which measures price changes for goods and services purchased by working individuals. This formula, dictated by federal law, uses data from July, August, and September. The increase for 2026 aligns with the adjustments from the past two years, which saw significant hikes due to high inflation during and post-pandemic.
Some advocates suggest switching to a measure of inflation that better aligns with senior spending habits. The government has even devised an “experimental” inflation measure called CPI-E, aimed specifically at the elderly, which often indicates slightly higher inflation than the current CPI-W.
For many seniors struggling financially, the main issue is skyrocketing medical costs, which are approximately double that of younger households. In fact, in 2022, health expenditures for households aged 65 and older made up 13.6% of their total spending.
It’s worth considering how these costs will evolve by 2026.
Medicare Part B
Part B premiums, covering outpatient services, form one part of senior healthcare spending. These premiums are generally deducted from Social Security checks, making them a focal point for many. What this really means is that while the COLA looks nice, the net increase after deducting Part B is what truly matters.
Though premiums for Part B in 2026 haven’t been officially set, predictions suggest they could rise by 11.6%, amounting to an additional $21.54, leading to a monthly fee of around $206.50. If this comes to pass, nearly half of the COLA given to the average beneficiary would be consumed by the Part B increase.
The impact varies: those with higher Social Security benefits will feel less sting from these increases. Next year’s COLA will result in a net increase of 2.18% for those receiving $3,500 monthly, whereas someone with $1,000 will see only 0.65%. Beneficiaries will be informed of these changes by mail and online starting early December.
Part B premiums have consistently gone up over the last decade. Medicare typically calculates total costs for the program, with premiums covering approximately 25% of that total. An unusually large hike of 14.5% was noticed in 2022 due to anticipated high costs of a new Alzheimer’s treatment; however, Medicare later opted not to cover that drug and returned premiums to a lower rate the following year.
Fall Enrollment
It’s a good idea to review your Medicare options during the fall enrollment period. If you’re using traditional Medicare—Part A for hospital stays and Part B for outpatient care—and have a Medigap policy, there’s generally no need for a thorough re-evaluation. However, taking a closer look at your Part D drug coverage is essential since premiums and cost-sharing may change.
This year’s review holds added significance due to recent improvements in Part D plans under the Inflation Reduction Act of 2022, which caps out-of-pocket expenses for covered medications. Starting in 2026, this limit will be set at $2,100—a crucial relief for those using expensive medications for conditions like cancer or multiple sclerosis.
Fearing that shifting risk to insurers might prompt steep premium hikes, the Biden administration has offered subsidies to drug plans to keep premium increases to a maximum of $35 per month. Many plans have taken part in this initiative, while the Trump administration will continue a similar stabilization program, albeit with lower subsidies, which could lead to premium increases of up to $50 in the upcoming year.
According to some research, while several popular plans may ask for higher premiums, there are also zero-premium options available in certain states, making them attractive for individuals who don’t need expensive medications. These plans often come with high deductibles ($615 next year) but also a maximum out-of-pocket limit of $2,100.
You might be asking why some insurers price their coverage low. A lot of it comes down to marketing. Most individuals don’t actively shop for Part D plans come fall, so even if costs rise later, they might cling to these cheaper options. Plus, insurers tend to market Medicare Advantage plans alongside Part D coverage, presenting a streamlined, all-in-one alternative to traditional Medicare.
Don’t just focus on premiums—make sure to check whether your current medications are covered and if there are specific restrictions, as well as what your out-of-pocket expenses may be.
If you have Medicare Advantage, you’ll have the chance to reassess and switch your coverage during the fall enrollment period. Start by reviewing your medication coverage, but also consider any alterations to your network of providers. You can even switch back to traditional Medicare, but ensure you can obtain additional Medigap coverage if you do.
Shopping Guidance
Many people enrolled in Medicare turn to insurance brokers for guidance. While brokers may possess in-depth knowledge about their specific plans, keep in mind that they might not cover all options available in your area and have financial incentives to promote Advantage plans, which attract higher commissions.
For a broader perspective on the available market, consider connecting with representatives of state health insurance assistance programs. These programs offer unbiased help with Medicare at no cost and are federally and state-funded. Additionally, the Center for Medicare Rights has a counseling hotline available at 1-800-333-4114.
The Medicare Plan Finder can also be helpful for comparing plans, but approach its star ratings with caution. These ratings influence bonus payments across various quality improvement plans and help users make informed choices, but they primarily reflect how multiple regional plans perform under a single Medicare contract.
Lastly, be cautious of the Advantage provider directory on the site, as it’s a relatively new feature that experts suggest is still developing and may not yet be reliable. Talking to your doctor can provide more trustworthy insight into Advantage plans for 2026.
