Make the most of the 2026 Social Security COLA increase

When people think about Social Security, they often focus on the monthly check, but a powerful feature doesn’t get enough attention: the annual cost-of-living adjustment, or COLA. This yearly boost helps your benefits keep pace with inflation, so your purchasing power doesn’t shrink over time.

The Social Security Administration announced that the COLA for 2026 will be 2.8%. This is slightly higher than the 20-year average of 2.6%. Once the new COLA kicks in, the Social Security Administration expects the average monthly benefit to be around $2,071.

Medicare Part B premiums are also going up in 2026, from $185.00 per month to $202.90 per month. Since these premiums are usually taken directly out of Social Security payments, your actual take-home amount might not increase as much as the COLA would indicate. The impact will vary depending on your personal financial situation.

Because the COLA is designed to help offset the effects of inflation, the increase can help pay for the general rise in your expenses. If you don’t need it to offset higher expenses, here are some smart ways to put it to work.

Using your COLA wisely

• Withdraw less from your portfolio. 

  With a slightly higher Social Security check, you may be able to reduce how much you withdraw from your retirement accounts. Even small reductions, especially during market downturns, can help your savings last longer.

• Build your cash reserves. 

  Your unspent COLA cash could also help you pad your cash reserves. This can help prepare you for potential market declines, ensuring your retirement spending needs are met while allowing your stocks more time to recover. We generally recommend retirees maintain a year’s worth of portfolio withdrawals in a separate spending account, plus another three to five years of withdrawals in a CD or short-term fixed-income ladder. We also generally recommend retirees have three to six months of living expenses set aside for emergencies.

• Give it to a loved one or charity.

  If you’re in a comfortable spot financially, think about using your COLA increase to help others. By making a 529 contribution to a loved one’s college savings, you may be eligible for a tax deduction on your state tax return. Alternatively, you may be able to receive a tax deduction for contributions to charity. Be sure to check with a qualified tax professional to see what applies to you. 

While this year’s COLA increase is certainly welcome, it’s important to remember that the Social Security COLA will vary over time. For example, while the Social Security COLA has averaged 2.6% over the last 20 years, in its history, it’s been as high as 14.3% and as low as 0% (like it was in 2010, 2011 and 2016). It’s also noteworthy that there’s no limit on how high a COLA can go, but it cannot fall below 0%.

How an Edward Jones financial advisor can help

This year’s COLA is a great opportunity to revisit your financial strategy. However, since things can change from year to year, it’s smart to stay flexible. Check in with your financial advisor to see how this increase fits into your overall retirement strategy.