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Miami Herald
3 days ago
- Business
- Miami Herald
Little-known rule prevents a Social Security benefit cut in 2026
Social Security retirement benefits are based on average wages during your working life, but your benefits don't stay the same during your retirement. In fact, the amount of the benefit changes pretty much every year. Benefits, of course, can't just stay stagnant because prices do not stay the same. Inflation happens, and retirees have to be able to maintain their buying power, especially as a Gallup poll shows around 58% of retirees consider Social Security to be a "major" source of their retirement income. Don't miss the move: Subscribe to TheStreet's free daily newsletter There are a couple of key factors that affect exactly how Social Security benefits can change on an annual basis. Unfortunately, based on those factors, there could be a risk of a benefit cut for some seniors next year. Fortunately, however, there is a little-known rule that will prevent that from happening. Here's why retirees could risk benefits decreasing in 2026, along with the rule that can save seniors from this fate. Image source: Shutterstock To understand why Social Security retirees risk a cut to benefits next year, you'll have to take a look at the two big factors that affect how benefits change over time. Those factors are: The Cost of Living AdjustmentMedicare premiums The Cost of Living Adjustment, or COLA, is built into Social Security to help protect buying power for retirees. Since prices go up, benefits have to go up, and the law allows for annual benefit increases based on changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Related: Social Security's 2026 COLA will be good news for older Americans CPI-W is created by the Bureau of Labor Statistics and tracks prices on a basket of goods and services over time. The average change to CPI-W is calculated for the third quarter of each year (July, August, and September), and retirees are given a Cost of Living Adjustment (aka a Social Security raise) on the basis of how CPI-W numbers changed. Based on how the CPI-W numbers have been trending this year, including July's number included in the calculation, it's estimated that the COLA is going to be 2.7% next year. So, Social Security checks could, in theory, rise by 2.7%. However, we can't forget about Medicare premiums. And that's where the problem comes in. For most retirees, Medicare premiums come right out of Social Security checks. And those premiums are going up a lot. The 2025 Medicare Trustees' annual report, which was released in June, shows a $21.50 per month premium increase is coming next year, raising premiums from $185.00 to $206.50. This adds up to an 11.6% increase, and it is the biggest year-over-year increase in Part B premiums since 2022, when premium prices surged by 14.5%. Related: Millions of Medicare beneficiaries could see major price shock Unfortunately, depending on how the final COLA numbers shake out, Medicare premiums could eat up all of the Social Security raise retirees get. And, for those with lower retirement checks, the big premium increase could cause payments to go down if Medicare premiums exceeded the benefits increase. Fortunately, that can't happen, thanks to a little-known rule called the Hold Harmless provision. This rule guarantees that even if Medicare costs rise faster than benefits do, seniors will not see their payments cut. Instead, their entire raise will simply disappear. Then, they will pay less than the full Medicare premium due for a while. For those who are underpaying Medicare premiums, they will eventually catch up in later years when the amount of their raise is big enough that it allows them to go back to paying the full amount of premiums without suffering a benefit decrease. The Hold Harmless provision doesn't apply to people enrolling in Medicare for the first time in 2022, nor to those who pay an income-related monthly adjustment amount premium or who are also enrolled in Medicaid and have Medicare premiums paid by a state Medicaid agency. More on retirement: Dave Ramsey offers urgent thoughts about MedicareJean Chatzky shares major statement on Social SecurityTony Robbins has blunt words on IRAs,401(k)s Still, this rule will be important to some retirees in 2026 to stop a Social Security benefit cut, even if most people have probably never heard of it. Related: Veteran fund manager unveils eye-popping S&P 500 forecast The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
Miami Herald
6 days ago
- Business
- Miami Herald
Social Security's 2026 COLA on track to break a 29-year trend
On July 15, 2025, the Bureau of Labor Statistics released the latest CPI numbers. That's a really boring sentence, but the numbers are actually extremely important and should be very interesting to Social Security retirees. That's because the Consumer Price Index for Urban Wage Earners and Technical Workers (CPI-W) is used to determine the Cost of Living Adjustment (COLA) that retirees will receive in 2026. That's better known as the annual Social Security benefits increase, or the raise that Social Security retirees get in most years. Don't miss the move: Subscribe to TheStreet's free daily newsletter The Social Security Administration looks at changes to a basket of goods and services that is included in the consumer price index. The average changes to CPI-W are calculated in the third quarter of the year, and that's the raise retirees get on their Social Security benefits. Since the June numbers are the first ones to be released from this third quarter's data, they provide a very important glimpse into what next year's raise may look like. And based on those numbers from July 15, the 2026 Social Security COLA is on track to do something it has not done in 29 years. The July CPI data showed that the Consumer Price Index rose 2.7% on an annual basis, while the CPI-W numbers showed a 2.6% year-over-year increase. While it's the CPI-W numbers on which COLAs are based, experts are also making projections for what the CPI numbers will look like for the next two months, which are also included in the benefit calculation. Related: Millions of Medicare beneficiaries could see major price shock Based on those projections, the Senior Citizens League has predicted a 2.6% benefits increase next year, up from the 2.5% raise predicted last month. Independent Social Security and Medicare policy analyst Mary Johnson, however, is projecting a 2.7% bump. Regardless of which of these is right, however, the COLA is about to buck a 29-year trend. That's because, for the first time since 1996, the COLA is going to be above 2.5% for five consecutive years. This is a once-in-a-generation shift for today's retirees, and it is not something that most people will probably see again in their lifetime. If the COLA comes in as projected, Social Security is going to hit a major milestone. For the first time since 1996, retirees are going to see a COLA that has been equal to or above 2.5% for five years running. Here's what the recent COLAs have looked like: 2021: 5.9%2022: 8.7%2023: 3.2%2024: 2.5%2026: 2.6% or 2.7% (projected) And the last time the COLAs had a five-year streak where they were at 2.5% or higher was from 1993 to 1996. Here were the COLAs during that time period: 1992: 3.0%1993: 2.6%1994: 2.8%1995: 2.6%1996: 2.9% That period in the 1990s was actually part of a decades-long streak of high COLAs due to high inflation. Since that time, however, there has not been another five-year period when raises were so high. In fact, there were several years in the mid-2000s when COLAs were under 1.00%. Related: Jean Chatzky sends strong message on 401(k)s, Social Security While it may seem, in theory, that five years of raises are good for retirees, that's very much not the case. In fact, this has been a tough period for seniors due to the significant inflation resulting from the fallout of the Covid pandemic. High inflation is not good for people on a fixed income with conservative portfolios, which fits the description of most retirees. More on retirement: Dave Ramsey offers urgent thoughts about MedicareJean Chatzky shares major statement on Social SecurityTony Robbins has blunt words on IRAs,401(k)s Still, seniors on Social Security can expect a record-breaking raise this year. Hopefully it will be the last one that's so high as inflation comes under control. Related: Veteran fund manager unveils eye-popping S&P 500 forecast The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
Yahoo
15-07-2025
- Business
- Yahoo
Social Security's 2026 COLA Could Be the Worst in Years, but Millions of Retirees Will Get a Big Financial Boost Anyway
The 2026 annual cost-of-living adjustment (COLA) could come in light again based on recent data. As inflation has slowed, COLAs have come down in recent years. However, millions of retirees who are at least 65 should see significant savings from recent legislation. The $23,760 Social Security bonus most retirees completely overlook › Each year, millions of retirees wait anxiously for the Social Security Administration (SSA) to announce the new annual cost-of-living adjustment (COLA). The COLA determines how much Social Security benefits will increase the following year and helps retirees, many of whom rely on Social Security for all or a significant part of their income, budget for the following year. While it's still months before the 2026 COLA is announced, recent data suggests retirees could be looking at the lowest COLA in years. However, millions of retirees will get a big financial boost anyway. The COLA is always determined based on inflation data from the third quarter of each year. Unlike the broader market, which relies heavily each month on the Consumer Price Index for All Urban Consumers (CPI-U), the SSA relies on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). While the CPI measures the change in prices for 93% of the U.S. population, the CPI-W only covers about 29% of the population and measures expenses more common to the blue-collar workforce. To calculate the following year's COLA, the SSA looks at the year-over-year percentage change for the average CPI-W in July, August, and September. Here are the last four COLAs: 2022: 5.9% 2023: 8.7% 2024: 3.2% 2025: 2.5% In recent months, data has pointed to slowing inflation. The monthly year-over-year change in the CPI-W has gone from 2.97% in January to 2.17% in May. There's still time before the data that actually counts toward the COLA comes into play, and factors like tariffs have the potential to make inflation change course. But if the CPI-W stays on its current trajectory, retirees are looking at the worst COLA in five years. COLAs are a bit of a double-edged sword because retirees also benefit from a cheaper cost of living, but many argue that COLAs have not been able to keep pace with inflation since the turn of the century. Recently, another factor will come into play that's going to help people who are at least 65 years old: President Donald Trump's "big, beautiful bill," a large budget reconciliation package. The primary goal of the legislation is to pass trillions in tax cuts and allocate funds for border security, but such a large bill includes many other provisions. The big one for retirees is a $6,000 additional senior tax deduction, or $12,000 for joint filers. To be clear, this is not aimed specifically at retirees collecting Social Security but anyone who is 65 or older, regardless of whether or not they receive Social Security benefits. To be eligible for the full deduction, single filers can make no more than $75,000, while joint filers can make no more than $150,000. The deduction completely phases out at $175,000 for single filers and $250,000 for joint filers. According to an analysis conducted by the White House's Council of Economic Advisers, the bonus deduction stands to benefit millions of Americans who receive Social Security benefits and pay taxes on them. Citing U.S. Treasury data, the Council found there were 58.5 million people age 65 and over receiving Social Security benefits in 2024. Of this group, 37.4 million received exemptions and deductions that exceeded their taxable Social Security income. With the new bonus deduction, this number will jump by over 14 million to 51.4 million, representing 88% of beneficiaries who are 65 or older and receiving Social Security. The deduction is temporary. It will go into effect next year (for the 2025 tax bill) and last through the 2028 year's taxes. The tax savings for a married couple with $100,000 of income could be roughly $1,600 per year, according to The Wall Street Journal. The average monthly benefit of a retired worker in May was $2,002, or about $24,024 a year. Assuming both people in a marriage receive that benefit (for a total of $48,048), the savings will amount to roughly 3.3% of the married couple's combined average benefits. That is equal to the average COLA since 1975 and above the average 2.6% COLA since the turn of the century. Remember, these savings are in addition to the 2026 COLA, whatever it ends up being. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. Social Security's 2026 COLA Could Be the Worst in Years, but Millions of Retirees Will Get a Big Financial Boost Anyway was originally published by The Motley Fool
Yahoo
15-07-2025
- Business
- Yahoo
Social Security 2026 COLA estimated at 2.7%, but much of it will go to Medicare Part B
Social Security recipients could get a 2.7% raise next year, up from last month's estimate of 2.5%, based on the latest inflation report, according to a new estimate. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), the index used to calculate the annual adjustment to Social Security benefits, gained 2.6% in June. Overall inflation rose 2.7% from May's 2.4% increase. The Federal Reserve's inflation goal is 2%. A cost-of-living adjustment, or COLA, is meant to help Americans keep up with inflation so they can maintain their standard of living year to year. But the hikes are falling short, especially when Medicare premiums, alone, are rising at a faster clip, seniors say. That happened in 2025 and is set to do so again next year. 'It's not uncommon for Part B premiums to consume much or even all of the annual COLA, leaving little extra to cover other big cost increases,' says Mary Johnson, an independent Social Security and Medicare policy analyst. Medicare Part B costs are rising several times faster than its average rate of increase in recent years. According to the 2025 Medicare Trustees annual report released in June, the Medicare Part B premium for 2026, is expected to increase to $206.50 from $185.00 in 2025 for a jump of $21.50 per month, or 11.6%. That's the largest Part B increase since 2022 when it rose 14.5%. The Social Security Administration automatically deducts the Part B premium cost from Social Security benefits for most Medicare recipients. A bigger Medicare bite means monthly checks will shrink. 'Medicare recipients are quick to point out that Part B premiums can frequently take much or even all of the annual COLA, leaving little extra to cover other big cost increases, such as housing or groceries,' Johnson said. If COLA rises by 2.7%, which is in line with the average 2.6% increase over the past 21 years, and Medicare Part B increases by 11.6%, those with the lowest Social Security benefits would hurt the most. "If the COLA in 2026 is 2.7%, a Part B premium jump of $21.50 would take the entire COLA of beneficiaries who receive around $800 or less," Johnson said. "This is especially the case for all individuals who receive a low Social Security retirement, spousal, or widow or widower's benefit." The Social Security Administration bases its COLA each year on average annual increases in the consumer price index for urban wage earners and clerical workers (CPI-W) from July through September. That means July inflation numbers will be especially important to pay attention to. The index for urban wage earners largely reflects the broad index the Labor Department releases each month, although it sometimes differs slightly. Last month, the overall consumer price index rose 2.7% and the index for urban wage earners increased 2.6%. In May, 74.269 million people received Social Security, according to the Social Security Administration. These beneficiaries include retired workers, disabled workers, survivors of deceased workers, and those receiving Supplemental Security Income (SSI). The average monthly benefit was $1,860.64 in May. Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@ and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday. This article originally appeared on USA TODAY: Social Security 2026 COLA estimated up 2.7%. What about Medicare?
USA Today
15-07-2025
- Business
- USA Today
Social Security 2026 COLA estimated at 2.7%, but much of it will go to Medicare Part B
Social Security recipients could get a 2.7% raise next year, up from last month's estimate of 2.5%, based on the latest inflation report, according to a new estimate. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), the index used to calculate the annual adjustment to Social Security benefits, gained 2.6% in June. Overall inflation rose 2.7% from May's 2.4% increase. The Federal Reserve's inflation goal is 2%. A cost-of-living adjustment, or COLA, is meant to help Americans keep up with inflation so they can maintain their standard of living year to year. But the hikes are falling short, especially when Medicare premiums, alone, are rising at a faster clip, seniors say. That happened in 2025 and is set to do so again next year. 'It's not uncommon for Part B premiums to consume much or even all of the annual COLA, leaving little extra to cover other big cost increases,' says Mary Johnson, an independent Social Security and Medicare policy analyst. How fast are Medicare premiums rising? Medicare Part B costs are rising several times faster than its average rate of increase in recent years. According to the 2025 Medicare Trustees annual report released in June, the Medicare Part B premium for 2026, is expected to increase to $206.50 from $185.00 in 2025 for a jump of $21.50 per month, or 11.6%. That's the largest Part B increase since 2022 when it rose 14.5%. The Social Security Administration automatically deducts the Part B premium cost from Social Security benefits for most Medicare recipients. A bigger Medicare bite means monthly checks will shrink. 'Medicare recipients are quick to point out that Part B premiums can frequently take much or even all of the annual COLA, leaving little extra to cover other big cost increases, such as housing or groceries,' Johnson said. Who hurts the most? If COLA rises by 2.7%, which is in line with the average 2.6% increase over the past 21 years, and Medicare Part B increases by 11.6%, those with the lowest Social Security benefits would hurt the most. "If the COLA in 2026 is 2.7%, a Part B premium jump of $21.50 would take the entire COLA of beneficiaries who receive around $800 or less," Johnson said. "This is especially the case for all individuals who receive a low Social Security retirement, spousal, or widow or widower's benefit." How is COLA calculated? The Social Security Administration bases its COLA each year on average annual increases in the consumer price index for urban wage earners and clerical workers (CPI-W) from July through September. That means July inflation numbers will be especially important to pay attention to. The index for urban wage earners largely reflects the broad index the Labor Department releases each month, although it sometimes differs slightly. Last month, the overall consumer price index rose 2.7% and the index for urban wage earners increased 2.6%. How many people receive Social Security benefits? In May, 74.269 million people received Social Security, according to the Social Security Administration. These beneficiaries include retired workers, disabled workers, survivors of deceased workers, and those receiving Supplemental Security Income (SSI). The average monthly benefit was $1,860.64 in May. Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@ and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
