CONTRIBUTORS
Bill Cass, CFP®, CPWA®
Director of Wealth Planning,
Franklin Templeton
The Social Security Administration and the Centers for Medicare & Medicaid Services recently announced key figures for 2026.
After several years of above-average cost-of-living adjustments for Social Security, beneficiaries will receive a slight increase in the cost-of-living allowance (COLA) in 2026 based on the current inflation environment. Recipients will get a 2.8% raise, which is higher than the 2.5% increase last year. The adjustment for 2026 is more in line with the average increase over the last 20 years (2.6%).
For Medicare, there will be a significant increase in costs for 2026 as the monthly base premium for Medicare Part B will increase from $185.00 to $202.90. This represents a nearly 10% increase in the base premium. For contrast, premiums rose last year by approximately 5%. Also, the annual deductible for all Medicare Part B beneficiaries will rise to $283 in 2026, an increase of $26 from 2025.
As retirees (and workers) gauge their finances for the upcoming year, here are some key figures to consider.
The Impact of Inflation on Social Security
Note: The earnings test only applies in years before attaining full retirement age. A higher earnings amount ($65,160 for 2026) applies during the year of attaining full retirement age. If retirement benefits are withheld because of earnings, benefits will be increased beginning at full retirement age to account for benefits that were withheld.
Medicare Part B Premiums
Source: Centers for Medicare & Medicaid Services. Income based on modified adjusted gross income (MAGI), which includes tax-exempt interest income. MAGI is based on income reported on the tax return from two years prior.
Planning considerations
If possible, taxpayers may want to manage income heading into retirement to avoid facing higher Medicare Part B premiums (note that Medicare Part D premiums also increase at higher income levels). Be mindful that premiums are based on income tax returns from two years prior. For example, your tax return at age 63 will determine premiums when enrolling in Medicare at age 65.
It may be wise to avoid a large surge in income (from a Roth IRA conversion, for example) during the two-year period prior to activating your Medicare benefits. This influx in income may result in higher Medicare premiums. On a positive note, qualified distributions from Roth accounts are not factored into the income calculation to determine Medicare premiums. For that reason, partial Roth IRA conversions during one’s working years may be a way to achieve tax diversification heading into retirement, while also avoiding higher Medicare Part B premiums in some cases.
Regarding Social Security, those who are still working should not opt to claim benefits prior to their full retirement age since it’s likely that benefits will be withheld due to the earnings test. The earnings test does not apply once an individual reaches their full retirement age (age 67 for those born in 1960 or later). If longevity risk (i.e., outliving one’s savings) is a concern, consider delaying Social Security past full retirement age. Retirement benefit amounts will increase by 8% for each year delayed up to age 70.
For more insight on planning for Social Security benefits see our investor education resource “Five things you need to know about optimizing Social Security.”
To understand the basics of how Medicare works, read, “Three key things to understand about Medicare.”
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