January brought mixed news for America's 75 million Social Security beneficiaries. Benefits increased by 2.8%—the annual cost-of-living adjustment (COLA) that helps retirees keep pace with inflation. But before you plan how to spend that extra money, there's a catch: Medicare premiums just jumped 9.7%.

For most retirees who pay Medicare Part B premiums directly from their Social Security checks, the math isn't pretty.

The Numbers: Before and After

Here's what's happening to the average retiree's check:

Social Security Increase:

  • Average retirement benefit before: $2,015 per month
  • Average retirement benefit after: $2,071 per month
  • Increase: $56 per month

Medicare Part B Premium Increase:

  • 2025 premium: $185 per month
  • 2026 premium: $202.90 per month
  • Increase: $17.90 per month

Net Gain: Approximately $38 per month

That's right—nearly one-third of the COLA increase is immediately consumed by higher Medicare premiums, leaving retirees with a net gain of about $38 per month, or roughly $456 for the year.

A Decade of Eroding Purchasing Power

This year's squeeze is part of a longer trend. According to The Senior Citizens League, Social Security benefits have lost 20% of their purchasing power between 2010 and 2024.

The problem is structural: the COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which may not accurately reflect the spending patterns of retirees—who typically spend more on healthcare, housing, and other costs that have risen faster than overall inflation.

"In an AARP survey conducted in September, 77% of older adults said a 3% COLA for 2026 would not be enough to help them keep up with rising prices."

— AARP Survey Findings

Other 2026 Changes Affecting Retirees

Beyond the COLA, several other changes affect Social Security beneficiaries this year:

Higher Taxable Maximum: Workers will pay Social Security tax on earnings up to $184,500 in 2026, up from $176,100 in 2025. This doesn't directly affect retirees but strengthens the system's finances.

Earnings Limits: If you're working while receiving benefits before full retirement age, the earnings limit increased to $24,480. Earn more than that, and the Social Security Administration deducts $1 from your benefits for every $2 you earn above the limit.

Full Retirement Age: For those born in 1959 or later, full retirement age is now 67—completing a 42-year transition from age 65.

New Senior Tax Deduction: A new $6,000 federal tax deduction for Americans 65 and older takes effect this tax year, courtesy of the One Big, Beautiful Bill Act. This temporary benefit runs through 2028.

Strategies to Protect Your Retirement Income

Given the squeeze between modest COLAs and rising healthcare costs, retirees should consider these strategies:

Review Medicare Options During Open Enrollment: Medicare Advantage plans or Medigap policies may offer better value than original Medicare for some beneficiaries. Compare options carefully each year.

Consider Delaying Social Security: For those not yet claiming, delaying benefits past full retirement age increases your monthly check by 8% per year until age 70. This creates a larger base for future COLAs.

Maximize the New Senior Deduction: The $6,000 deduction for those 65+ could save hundreds in taxes depending on your bracket.

Explore Income Strategies: Part-time work, rental income, or dividend-focused investing can supplement Social Security and reduce dependence on COLAs keeping pace with your actual expenses.

The Bigger Picture

The challenge facing Social Security beneficiaries reflects broader healthcare and retirement security issues in America:

  • Healthcare costs consistently outpace general inflation
  • The COLA formula may understate retiree inflation
  • Social Security was never designed to be a sole retirement income source
  • The program faces long-term funding challenges, with the trust fund projected to be depleted in the 2030s without congressional action

For current and future retirees, the message is clear: Social Security remains a vital foundation, but relying on it alone is increasingly risky. Supplemental savings, careful healthcare planning, and ongoing income strategies are essential to maintaining your standard of living in retirement.

What's Coming Next

The 2027 COLA will be announced in October 2026, based on inflation data from the third quarter. Current projections suggest another modest increase, though much depends on inflation's trajectory over the coming months.

For now, retirees are advised to budget carefully, explore all available benefits and deductions, and continue monitoring their healthcare options to maximize every dollar of their Social Security check.