TRANSCRIPT
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#87 - The Truth Behind Social Security Increases and What They Mean for Your Retirement
Eric Blake: Have you ever wondered how Social Security decides to give you a raise each year, and what that increase actually means for your retirement? Welcome to another episode of the Simply Retirement Podcast, where we want to empower and educate women to live your retirement on your terms. I’m your host, Eric Blake, practicing retirement planner with over 25 years of experience, founder of Blake Wealth Management, and I would not be the man I am today without the women in my life.
Joining me again on this episode is Wendy McConnell. Wendy, how are you?
Wendy McConnell: I’m good. How are you?
Eric Blake: I am very good. So just a fair warning before we get into this episode—this is one that, as I was preparing my notes, I had to really fight the urge to completely nerd out. So just fair warning, I’m relying on you to keep me on track and not go down any rabbit holes.
Is that fair?
Wendy McConnell: I have to stop you from being a nerd.
Eric Blake: Yes. That’s all on your shoulders.
Wendy McConnell: All right. That is a big responsibility, but I will try and take it on. I understand.
Eric Blake: I’m a self-admitted nerd, so I get it—especially when it comes to Social Security.
All right, here we go.
This stuff is fun to me.
I know it’s not fun to many other people, but I like it.
We’re talking about increases. That can be fine. It can be. But there’s obviously, as you probably expect, a little controversy that surrounds this too. So we’ll get into all that as we go through the content.
Okay.
So just out of curiosity, how well do you feel like you—or just people in general—understand how Social Security actually increases your benefit over time?
Wendy McConnell: Yeah, I don’t know.
Eric Blake: Good. That’s a good thing. That’s a good topic then. And what’s interesting is I think a lot of people, because you really only see this cost-of-living announcement that occurs—the COLA—that gets announced every year sometime around October, don’t necessarily understand the difference between how benefits grow while you’re working…
Wendy McConnell: Right.
Eric Blake: …but also what happens when you do turn 62, or what this actual cost-of-living adjustment really means. Because if anybody is working right now and they’re in their forties or fifties, it doesn’t mean anything. And I’ll explain why that is in just a little bit.
But what I basically want to go through in this episode is what this new 2.8% cost-of-living increase means—that was the actual number that’s going to be in effect for 2026—how Social Security actually increases your benefit, why those early years—even when you were in a retail store, whatever you might have been doing in your teenage years—actually do matter, and also how working in your later fifties, your sixties, maybe even your seventies, can still boost your benefit as well.
And most importantly, how do we use all this to make better retirement planning decisions?
Wendy McConnell: All right.
Eric Blake: Sound good?
Wendy McConnell: I’m ready.
Eric Blake: And don’t forget, as always, the links and resources can be found at thesimplyretirementpodcast.com.
All right, so let’s start with your headline number.
Social Security benefits are going to increase by 2.8% for 2026.
Now here’s basically what happens. Typically, around the later part of October, Social Security makes this announcement. They announce the cost-of-living adjustment, or the COLA, for the following year. And as we’re recording this, it was actually just a few weeks ago. But by the time people are listening to this in January, you might have already received your first check with this increased benefit if you’re already receiving benefits.
But I really do think this is still a great time to understand and plan for what this increase means.
So to start off, this increase really applies to people who are age 62 and older, whether you have filed for Social Security benefits or not. It also, of course, applies to anybody that is receiving benefits. And then it’s going to apply to things like spousal benefits and survivor benefits and all those types of things as well.
But here’s the important thing to remember: this is not a bonus. It simply means that you’re getting this increase to hopefully help your benefit keep up with rising prices.
So that gives you some idea that this is a result of prices continuing to increase. We know this has been a challenge over the last few years. But this is basically Social Security’s methodology of trying to help you keep up with those cost-of-living increases.
And to understand how meaningful this is, I do think it’s helpful to briefly talk about how Social Security measures inflation, because this is where some of that controversy actually does come in, and why I think it can be really tough for many seniors—especially if Social Security is the primary income source.
So when we talk about what this is, there’s something called CPI, and you hear it on the news all the time, but nobody really explains what this means. CPI stands for Consumer Price Index.
Wendy McConnell: I knew that one.
Eric Blake: You knew that one. Perfect. And what this basically measures is everyday items—food, gas, housing, healthcare, all these different things.
But there’s another version of CPI that’s more important for Social Security recipients, and this is called CPI-W.
Wendy McConnell: Okay, I don’t know that one.
Eric Blake: This stands for the Consumer Price Index for Urban Wage Earners and Clerical Workers. And yes, I’m reading that because I don’t want to try to remember it.
Wendy McConnell: Okay. So the “W” represents all of that.
Eric Blake: Exactly. CPI-W. But what it does is it’s actually reflective of people who are still working. So it puts more weight on gas and transportation and work-related costs, and less weight on things like healthcare, prescription drugs, housing, and utilities—things that, for many seniors, are often much more impactful.
And that’s why I think it’s so important to realize, when we’re talking about this increase, why it doesn’t always feel like a very helpful item. Because your personal inflation might actually be significantly higher than that 2.8%.
What’s interesting is that they take the CPI-W number for the months of July, August, and September—just those three months—and that’s what they use to determine the increase in Social Security for the following year.
And so it’s basically that three-month window.
Now, there’s also what I would best term an experimental index called CPI-E. It’s not really a fully adopted index, but it’s out there. And it’s based on the idea of how do we apply a CPI number that’s reflective of people who are working to people who are retired? How does that make any sense?
So this potential CPI-E number is for people age 62 and older, and it gives more weighting to healthcare and housing. Many people think it would be a better measure for retirees.
But here’s the problem. If it increases Social Security more than CPI-W does, that creates additional strain on the Social Security system. And we already know that’s a concern. So if we increase benefits even further because it’s more reflective of what seniors are actually dealing with, that could make the existing problem worse.
Wendy McConnell: Which is that it’s running out.
Eric Blake: Exactly. Unless we do something, it’s running out. And we’ve talked about some possible solutions before, and maybe we’ll get into that a little later.
But the bottom line is, this is why it’s important to understand that this cost-of-living increase is based on working households, not retirees. So again, you may feel like your personal inflation is rising at a much faster rate.
Now I want to talk about how your benefit actually grows over your lifetime. A lot of people get confused about this, and it really comes into play when you’re making decisions about how long you’re going to work, what your work history looks like, and when you’re going to file for benefits.
There are three important concepts here: wage indexing, delayed credits, and cost-of-living adjustments. There’s also something called bend points, which could be a whole episode on its own, but it helps tie everything together when you’re thinking about when to work, when to retire, and when to file.
So let’s start with wage indexing. Before retirement, your estimated Social Security benefit adjusts your past earnings using the Average Wage Index. This helps keep your older earnings relevant today.
For example, if you earned $15,000 in 1988, after wage indexing, that might be more like $40,000 in today’s dollars. It’s similar to how we adjust numbers for inflation when comparing different time periods.
Wendy McConnell: Okay.
Eric Blake: Now, you mentioned that early earnings might be dismissed if you have a long work history. And that depends. Social Security uses your highest 35 years of earnings. If you don’t have 35 years, those early years really matter.
So those early jobs—working at a soda shop, retail, whatever it was—you might not have earned much, but they still count. And that’s especially important for women who may have taken time out of the workforce for caregiving.
Now, here’s another important point: wage indexing only applies up to age 60. After that, there’s a gap period between ages 60 and 62 where earnings still count, but they’re not adjusted for inflation.
At age 62, cost-of-living adjustments start, even if you haven’t filed for benefits yet. So that 2.8% increase applies to anyone 62 or older, whether they’ve filed or not.
Wendy McConnell: Is that the only thing increasing it, or is there something else?
Eric Blake: There’s also the age factor. If you file early—say at 62—you’re getting about 30% less than your full retirement age benefit, which for most people born in 1960 or later is age 67.
But even if you file early, you still receive cost-of-living adjustments. The key difference is that you’re getting those increases on a smaller base benefit.
By delaying filing, your benefit increases, and those cost-of-living adjustments apply to a larger amount. That’s why the filing age decision can make such a big difference over time.
Wendy McConnell: Nobody’s ever explained it that way before.
Eric Blake: I’m glad to hear that. That means this was a good topic.
And this all ties back into planning—especially for women who may have had gaps in their work history due to caregiving or other responsibilities.
Now let’s briefly touch on bend points. These determine how much of your income Social Security replaces. Lower-income earners receive a higher percentage replacement than higher-income earners. That’s why someone earning $300,000 doesn’t get an enormous Social Security benefit.
Social Security is designed to be progressive, replacing a higher percentage of income for lower earners.
Now, working later in life—your fifties, sixties, even seventies—can be very meaningful. Those years can replace lower-earning years in your 35-year calculation and permanently increase your benefit.
Even if you’ve already filed for benefits, continuing to work can still increase your benefit if those earnings replace lower or zero years.
Wendy McConnell: I’m glad I have a financial advisor and don’t have to worry about all of this.
Eric Blake: And that’s the point. It gets complex, and not everyone has the same options due to health or other factors. But understanding how this works helps you make better decisions.
Social Security is often the only source of lifetime, inflation-adjusted income people have. So knowing what your benefit will be, and how it fits into your overall retirement plan, is critical.
Now, before we wrap up, let’s go through the biggest takeaways.
The benefit increase for 2026 is 2.8%, but your personal inflation may be higher.
Benefits grow differently while you’re working than they do after age 62, and understanding that timeline helps with filing decisions.
Every earning year matters. Working later in life can replace low years and permanently increase your benefit.
Delaying the higher earner’s benefit can significantly strengthen survivor benefits, which many women will rely on later in life.
And Social Security is foundational, but it needs to be part of a broader retirement plan that considers income, taxes, and longevity.
Wendy McConnell: So basically, Social Security is not everything, and we’re going to need more.
Eric Blake: Exactly. And there will have to be some solution down the road—probably at the last minute, like always.
Wendy McConnell: They really wait, don’t they?
Eric Blake: They do. The last big changes were in 1983, and it was the same scenario.
Awesome, Wendy. Thank you so much for joining me today. If you want help understanding how these Social Security updates impact your retirement—especially decisions around when to file, whether to keep working, and how survivor benefits work—please visit getmysimplyretirementroadmap.com to schedule a call with our team.
That’s it for today’s episode. For all the links and resources, you can visit thesimplyretirementpodcast.com.
And until next time, please remember: retirement is not the end of the road. It’s the start of a new journey.
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