Planning Around the 2026 Cost-of-Living Adjustment to Social Security Benefits by Patricia Giarratano, CPA
Social Security recipients, including senior citizens, widows and people with disabilities and special needs, will receive a 2.8 percent cost-of-living adjustment (COLA) to their benefits in 2026. The increase represents an additional $56 per month in payments for benefits that include Old-Age, Survivors, and Disability Insurance (OASDI) and Supplemental Security Income (SSI).
The Social Security Act ties the annual COLA to the Consumer Price Index (CPI), a critical measure of inflation. Yet, the adjustments generally are insufficient for most individuals to afford the rising costs of aging or the perpetual care of family members with disabilities or special needs. Instead, individuals at all income levels with and without special needs should rely on other estate planning strategies to ensure they and their loved ones can afford the care they need and deserve throughout their lives.
For example, allocating savings to tax-advantaged 401(k) plans, individual retirement accounts (IRAs) and insurance policies can help fund a comfortable retirement for you and provide additional financial benefits to surviving family members long after you are gone. Trusts are another option that can protect assets from creditors and help ensure a smooth transfer of ownership during your life and after death. When family members or loved ones have chronic illnesses or physical or mental disabilities that impede their ability to care for themselves, a special needs trust should be considered to finance those individuals’ quality of care without jeopardizing their rights to receive government benefits. Under these circumstances, the trust assets and the income they generate are not considered to be owned by the beneficiaries.
No conversation about Social Security retirement, survivor, and disability benefits is complete without considering federal income taxes. Generally, tax is imposed on Social Security benefits when the recipient’s combined income, which includes adjusted gross income, tax-exempt interest income and half their Social Security benefits, exceed $25,000 for individuals or $32,000 for married couples filing joint tax returns.
The good news is that you can reduce the odds of receiving a sizeable federal tax bill by choosing to have the Social Security Administration (SSA) withhold a percentage of your monthly payments. You may also minimize your tax burden during retirement by donating up to $100,000 of your retirement account required minimum distribution (RMD) directly to a qualified charity. Or, you may convert a pretax 401(k) or traditional IRA into a Roth IRA, which will require you to pay tax at the time of the conversion in return for tax-free withdrawals in retirement.
Individuals of all ages should take the time to regularly review their “my Social Security” accounts at www.ssa.gov/myaccount and work with their advisors to implement sound estate planning strategies that prepare them for the retirement they desire.
About the Author: Patricia Giarratano, CPA, is a director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where she works with high-net-worth clients and business owners to develop comprehensive, tax-efficient estate, trust, gift tax and income plans. She can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or info@bpbcpa.com.
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