2026 Social Security Increase! What’s the REAL Number?

The numbers are in for the new Social Security Cost-of-Living Adjustment (COLA). It might seem like beneficiaries are getting a raise, but the increase may not feel as significant as many retirees expected. That’s because your Social Security COLA isn’t the only thing affecting the amount that actually lands in your bank account each month. Rising Medicare Part B premiums can offset a portion of that increase, leaving many retirees with a much smaller bump in their monthly checks.

Here is a closer look at how the Social Security cost-of-living adjustment is calculated, why Medicare premiums matter, and whether today’s inflation measure accurately reflects what retirees are really experiencing.

How Is the Social Security COLA Calculated?

The Social Security cost-of-living adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index measures inflation by tracking changes in the prices consumers pay for goods and services. It’s the measure Congress selected to determine annual increases in Social Security benefits.

One important thing to understand is that CPI-W isn’t specifically designed around retiree spending. Instead, it reflects the spending habits of working Americans, which have led to ongoing debate about whether it’s the best measure for people living on retirement income.

Before 1972, Social Security benefit increases weren’t automatic. Congress had to vote every time benefits were adjusted for inflation. That changed in 1972 when lawmakers created a systematic way to apply annual cost-of-living adjustments, with the first automatic COLA taking effect in 1975.

Why Medicare Part B Premiums Can Offset Your COLA

While Social Security COLA is tied to the CPI-W, Medicare Part B premiums are calculated differently.
According to the Centers for Medicare & Medicaid Services (CMS), Part B premium increases are based primarily on projected changes in healthcare prices and expected utilization of Medicare services. In other words, they don’t rise and fall with the same inflation measure used for Social Security.

Current projections show:

Social Security COLA increasing by 2.8%
Medicare Part B premiums increasing by approximately 11.6%

Even though your Social Security benefit is increasing, a larger Medicare premium can absorb part of that raise before you ever see it.

Example

Let’s look at a quick example to see how a Medicare premium increase can reduce the amount you actually receive. Suppose someone receives $2,000 per month in Social Security benefits in 2025. With a 2.8% COLA, their monthly benefit would increase by about $56, adding roughly $700 per year to their Social Security income. Now factor in Medicare. If the monthly Medicare Part B premium increases by the projected $21.50, that amount is deducted from the benefit increase. Instead of keeping the full $56 increase, the retiree would only see about $34.50 more each month.

Example: $2,000 Monthly Social Security Benefit	Amount
Monthly Social Security Benefit (2025)	$2,000.00
2026 COLA (2.8%)	+$56.00
Projected Medicare Part B Increase	−$21.50
Actual Monthly Increase	+$34.50

The advertised 2.8% COLA effectively feels closer to a 1.73% increase for this individual. Even though inflation has resulted in a larger Social Security benefit on paper, the real-world increase retirees experience can be much smaller.

Does CPI-W Really Reflect Retiree Expenses?

If retirees spend their money differently from working Americans, is CPI-W really the best measure for calculating Social Security COLAs? Healthcare accounts for only about 7% of the CPI-W, and Medicare premiums make up only a small fraction of that category. This means the index doesn’t fully capture the growth in healthcare costs many retirees experience.

For many retirees, healthcare costs consume a much larger share of their monthly budget than they do for younger workers. Some argue that CPI-W doesn’t fully capture the inflation retirees actually experience.

Can Your Social Security Check Ever Go Down?

Many people assume that because Social Security receives an annual COLA, their monthly check can never decrease. In 2026, current projections suggest that it won’t happen. However, during 2016 and 2017, roughly 30% of retirees saw their net Social Security benefits decline because Medicare Part B premium increases outweighed their COLA increases. The remaining 70% did not, thanks to a special protection built into Medicare law.

Understanding the Hold Harmless Provision

In 1988, Congress passed the Medicare Catastrophic Coverage Act, which included what’s known as the Hold Harmless Provision. This rule prevents Medicare Part B premium increases from reducing Social Security checks if you qualify.

Generally, to receive Hold Harmless protection, you must:

Receive Social Security benefits during both November and December of the current year
Have your Medicare Part B premiums deducted directly from your Social Security benefit
Continue having those premiums deducted in December and January
Not be subject to IRMAA (Income-Related Monthly Adjustment Amount)

Approximately 70% of Medicare beneficiaries qualify for this protection. However, not everyone qualifies for this protection.

Who Doesn’t Qualify?

Not everyone receives Hold Harmless protection.

Generally, you won’t qualify if you are:

A new Medicare enrollee without a history of Social Security benefit deductions
Delaying Social Security while already enrolled in Medicare
Paying IRMAA because of higher income
Subject to certain other Medicare situations

This is another reason why reducing or avoiding IRMAA whenever possible can make a meaningful difference during retirement.

Would CPI-E Be a Better Inflation Measure?

Many retirement advocacy groups believe Social Security should use CPI-E, the Consumer Price Index for the Elderly, instead of CPI-W.

Retirees generally spend more of their income on:

Healthcare
Housing

CPI-E gives those categories greater weight than CPI-W, making it a closer reflection of retiree spending patterns. That said, the difference probably isn’t as dramatic as some people expect.

Historically, CPI-E has averaged only modestly higher than CPI-W. While it may provide a somewhat better measure of retiree inflation, it likely wouldn’t completely solve the issue of purchasing power. Unlike CPI-W, CPI-E is still considered an experimental index and isn’t released on the same schedule. While many believe it better reflects retirees’ spending, it has not been adopted to calculate Social Security COLAs.

Do COLAs Really Preserve Purchasing Power?

Although Social Security recipients will technically see their monthly benefit increase in 2026, the bigger question is whether those adjustments truly preserve purchasing power. Rising Medicare premiums and healthcare costs continue to reduce the impact of annual COLAs for many retirees. Understanding how these pieces fit together can help you better prepare for retirement income and avoid surprises.

How Paces Ferry Wealth Advisors Can Help

Social Security, Medicare premiums, IRMAA, and retirement income planning all work together. Looking at one piece in isolation can make it difficult to understand how much income you’ll actually have available in retirement.

At Paces Ferry Wealth Advisors, we help retirees understand how changes in Social Security, Medicare, taxes, and investment income affect their overall retirement plan. We also work with clients to identify strategies that may help reduce Medicare costs, minimize IRMAA when appropriate, and make informed decisions about retirement income.

If you’d like help building a retirement income strategy or understanding how these changes affect your personal situation, schedule a conversation with Paces Ferry Wealth Advisors.

Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.