Millions of Americans rely on Social Security as a primary income source in retirement, but upcoming changes to the way certain benefits are calculated could bring significant reductions to those future payments. Beginning in 2026, a shift in how the Social Security Administration calculates benefits based on inflation and lifetime earnings could lead to smaller checks for many retirees, especially those with higher incomes or those born in or after 1960. Understanding the details of this rule change—and why it’s occurring now—can help retirees and pre-retirees plan more strategically for their financial futures.
At the center of this issue lies a tweak to the formula used to determine benefits—one that might seem minor in theory but could carry major consequences depending on your birth year and lifetime earnings. The combination of inflation-based adjustments, career-averaged income, and wage indexing means that the Social Security benefits landscape is shifting. For those relying on that monthly check to meet essential expenses, it’s not just a political debate—it’s a financial reality that could upend retirement expectations.
Key facts about the 2026 Social Security changes
| Change Effective Year | 2026 |
|---|---|
| Who Is Affected | Mainly individuals born in or after 1960, especially higher earners |
| Why It’s Happening | Shift in Average Wage Indexing (AWI) following COVID-era economic slowdown |
| Potential Impact | Lower monthly Social Security benefits for future retirees |
| Solution Available? | Congressional action could revise the indexing change |
What changed this year
Many Americans are surprised to learn that their Social Security retirement benefits are determined by more than just how much they’ve earned over a lifetime. Key to the equation is the Average Wage Index (AWI), which adjusts historical earnings for inflation based on national average wages. For people born in 1960, the base year for calculating their earnings and benefits is 2022. And that’s where problems emerge.
Because of the unusual economic patterns in 2020 and the following years—namely, the high job losses and volatility due to the COVID-19 pandemic—average wages fluctuated in ways that disrupt Social Security’s formula. When the AWI dropped in 2022 compared with 2021, the calculation for benefits also shrank, leading to potentially reduced monthly payments for anyone with that year as their indexing base.
Who qualifies and why it matters
Anyone born in 1960 or later and planning to retire after 2026 may see a reduced monthly Social Security benefit—not because of lower personal earnings, but because of how their earnings are adjusted for inflation. This technical shift could reduce lifetime benefits by tens of thousands of dollars for higher earners.
The formula reduction could disproportionately affect individuals who had higher incomes during their working years, since their benefits are based on a sliding scale that replaces a smaller portion of higher wages. But even middle-income retirees may notice a difference. This also matters because Social Security isn’t just a monthly income—it’s the foundation for millions of retirees’ entire financial planning strategies.
How inflation and wage averages affect your check
The Social Security Administration uses AWI to convert past years’ income into today’s dollars. Then, the top 35 years of adjusted earnings are averaged to determine your monthly benefit. But a single year’s dip in AWI—especially near your retirement window—can have outsized effects.
This is particularly relevant now. Due to how the 2022 AWI will be plugged into the formula for those turning 62 in 2022 or later (meaning born in 1960 or later), this “base year” locks in lowered wage assumptions, thereby dragging down the entire benefit computation. Experts estimate the impact on benefits could range between 3% to 9%, depending on earnings and timing of retirement.
“It’s a technical glitch with real consequences. This isn’t about people earning less—it’s about how the index calculates the value of their past earnings.”
— John Phillips, Retirement Policy Analyst
How much are retirees expected to lose?
According to independent actuarial estimates, someone earning at about the 75th income percentile (roughly $70,000 to $80,000 annually) might lose upwards of $20,000 in total lifetime benefits due to the change. For higher earners, the potential loss could be even more staggering—closer to $60,000 or more depending on how long they live post-retirement.
This change won’t affect retirees who already claimed benefits before 2026, nor will it impact those born before 1960. Still, the number of people reaching retirement age each year means millions are potentially affected. A solution has been proposed in Congress to “smooth” these anomalies by averaging multiple years’ wage indexing, rather than using a single-year snapshot that could be misleading.
Winners and losers of the new rules
| Group | Impact |
|---|---|
| People born before 1960 | Unaffected |
| People born in 1960 | Potential benefit cuts of 3–9% |
| Higher-income earners (after 1960) | Highest benefit reductions in dollar terms |
| Low-income earners | Smaller reductions, may still feel impact |
| Current retirees | Completely unaffected |
What Congress is doing about it
Several proposals have been floated in Congress to amend how Social Security indexes past earnings, especially during years with large economic anomalies. One supported idea is to average multiple years of wages—3 to 5 years—instead of depending solely on one base year that may misrepresent actual earning capacity.
However, due to legislative gridlock and the political cost of reforming Social Security, action has been slow. Advocacy groups are pushing for a correction by 2025 to prevent the potential drop in checks by 2026. Meanwhile, retirees are encouraged to understand their Social Security statement projections and consider other sources of income like IRAs or 401(k) plans to cushion any change.
“This isn’t a cut in the law—it’s a cut in the math. And it’s fixable if lawmakers choose to act.”
— Ellen Stratton, Senior Fellow at Social Security Equity Institute
Practical steps to protect your retirement
Whether you’ll be affected or not, this formula change highlights just how sensitive retirement affordability is to policy shifts. Here are three actions retirees and near-retirees can take now:
- Request your latest Social Security earnings statement and verify your earnings history is accurate
- Map out alternate income sources like pensions, savings, or annuities in case of reduced benefits
- Stay informed about pending legislation that may correct indexing issues before 2026
The earlier you act, the better equipped you’ll be to make informed decisions about claiming age, spousal benefits, or delaying retirement for higher monthly payments.
Common questions about the 2026 Social Security changes
Who is affected by the Social Security change starting in 2026?
People born in or after 1960 and planning to retire at or after age 62 in 2022 or later may receive lower monthly benefits due to the indexing anomaly.
How much could my benefits be reduced?
Reductions may range between 3% to 9% over your lifetime benefit, depending on your lifetime earnings and the age at which you claim benefits.
Is there anything I can do to avoid the cut?
If Congress does not fix the glitch, delaying your claim to increase benefits or exploring spousal options may help cushion the reduction. Staying informed is key.
Does this affect people already receiving Social Security?
No. Individuals already receiving monthly Social Security benefits before 2026 are not impacted by the 2026 rule change.
Why did this indexing problem happen now?
The anomaly is tied to the COVID pandemic’s economic effect in 2020, which distorted the national Average Wage Index used as the base for certain birth years.
What can Congress do to fix it?
Lawmakers could fix the issue by averaging multiple years’ wage indexes instead of relying solely on a year that saw anomalous data.
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