Your COLA Gave You a Raise. Then It Took Part of It Back.
In January 2026, Social Security gave the average retiree a $56 raise. Cost-of-living adjustment. 2.8%. A nice round number on the statement.
Part of that raise came right back as federal income tax. Nobody voted for it. Nobody announced it. The formula just ran.
Here is how the formula runs.
The Pipe and the Frozen Line
The IRS uses something called provisional income to decide how much of your Social Security benefit gets taxed. The math is simple. Take your adjusted gross income. Add any tax-free bond interest. Add half of your Social Security benefit. That total is your provisional income.
If you file single and your provisional income crosses $25,000, up to 50% of your benefit becomes taxable. Cross $34,000 and it jumps to 85%.
Those dollar amounts were set in 1983 and 1993. They have never moved. Not once. Not for inflation. Not for anything.
The SSA's own history page says it out loud:
"Since the thresholds in the 1983 law were intentionally not indexed, over time, they would lose some of their threshold effect as increases in real income or in inflation would tend to pull more and more people into tax liability."
Right.
$25,000 in 1983 is worth about $82,000 today. The line didn't move. The floor rose. Every year, more retirees step over it without changing a thing about their lives.
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The Ratchet
The Greenspan Commission figured about 10% of retirees would pay tax on their benefits when the law kicked in. That was the pitch. A small slice. A modest revenue patch.
The CBO now estimates 48% of beneficiaries will pay income tax on their Social Security in 2026. Almost half. The threshold never moved, so each COLA turned the crank one more click. Your raise made your benefit bigger. Half of that bigger benefit fed into the formula. The formula pushed you closer to the line. Or over it.
No vote required. The calendar does the work.
The Torpedo
Here is where it gets interesting. In the zone between the two thresholds, each extra dollar of outside income doesn't just get taxed on its own. It also drags more of your Social Security benefit into the taxable pile. A dollar of pension income can create $1.50 of taxable income. In the upper zone, $1.85.
For a retiree in the 22% bracket sitting inside that zone, the effective marginal rate on that next dollar hits 40.7%. Financial planners call it the "tax torpedo." It hits middle-income retirees the hardest. Not the poor. Not the rich. The people in the middle, pulling modest IRA withdrawals, collecting a small pension, doing everything right.
I mean. The people reading this.
The Lock
Why doesn't Congress fix it? Because the tax on Social Security benefits now throws off $120 billion a year. That money flows straight to the Social Security and Medicare trust funds. The Committee for a Responsible Federal Budget ran the numbers: repeal the tax and Social Security's trust fund goes broke two years sooner, Medicare's four years sooner.
Congress has a $120 billion reason to leave that threshold right where it is.
Elon Musk’s One Stock Retirement Plan
Sometimes you come across an opportunity so explosive…
That it has the potential to turn a small stake…
Into a six figure and in some rare cases even a seven-figure nest egg…
Like it happened when I picked Nvidia in 2016.
It jumped high enough to turn $5,000 into an entire retirement nest egg of $1,895,000.
And while I can’t guarantee you’ll become a millionaire...
I think this little-known AI stock is one of those opportunities…
Which is why I call it “Elon Musk’s One Stock Retirement Plan.”
Now, if this idea of retiring with a single stock sounds crazy to you…
You should know that some of the best investors in the world believe that the idea of diversification is a little overrated.
Stanley Druckenmiller said…
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Or listen to legendary investor Peter Lynch. He said…
“I would own one stock if I can find one great stock.”
Even Warren Buffett said…
“Diversification is protection against ignorance. It makes little sense if you know what you are doing.”
If I could buy only one stock, this would be it… it might just be the perfect tech stock.
It’s a leader in an AI breakthrough that’s protected by 150 patents…
It’s a small company, unknown to most people… still in the initial phase of exponential growth…
Plus, it has a near term catalyst that could send shares skyrocketing… starting November 11.
The Misdirection
Remember when the president said he would end taxes on Social Security? The One Big Beautiful Bill Act created a new $6,000 deduction for taxpayers 65 and older.
Sounds like a fix. It is not.
The $6,000 deduction reduces taxable income but does not reduce AGI. It sits below the line. The provisional income formula starts with AGI. So the torpedo fires first. Then the deduction shaves a little off the bill at the end. The door that catches you never moved. You just get a slightly smaller bruise after you hit it.
Sure.
The Next Click
The 2027 COLA is already tracking. Early estimates from the third-quarter data put it between 3.4% and 3.6%. Bigger raise than this year. The threshold will still be $25,000.
Another January. Another raise. Another click of the ratchet. The formula doesn't need a vote. It just needs a calendar.
