YourSocialSecurityCheckRisesin2027.Here'sWhyItMightNotFeelLikeaRaise.

Social Security is projected to increase next year. Based on current data, the 2027 cost of living adjustment is expected to land somewhere in the range of 3% to 4%, which on the average benefit works out to roughly $70 to $80 more per month. That is a genuine increase, and it is worth acknowledging as one.

But a meaningful portion of that increase is spoken for before you ever see it, and in my experience, most retirees have never had the full picture explained to them. That is the conversation I want to have here.

One caveat before I get into it. The 2027 figures are still projections at this stage, based on data available at the time of publication. The official COLA is announced in October, and the final Medicare numbers are confirmed later in the fall. The exact figures may shift, but the underlying dynamics hold regardless of where they settle.

Medicare Is Paid First

For most retirees, the Medicare Part B premium is deducted directly from the Social Security check before it is deposited. That premium is projected to rise from $202.90 per month in 2026 to approximately $209.50 in 2027. So the first thing that happens to the COLA increase is that a portion of it is absorbed by a higher Medicare bill.

On its own, an increase of six or seven dollars a month is manageable. But the standard premium is only part of the equation, and it assumes you are not subject to IRMAA. For many of the households we work with, IRMAA is where the real impact lies.

A Brief Word on IRMAA

IRMAA, the Income-Related Monthly Adjustment Amount, is a surcharge Medicare applies on top of the standard premium once income exceeds certain thresholds. For 2027, those thresholds are projected to begin around $112,000 for single filers and $224,000 for married couples filing jointly, based on current estimates. Once income crosses those lines, the premium increases, in some cases substantially.

Here is the mechanism that catches people, and it is worth understanding even though it runs counter to intuition. Medicare does not base your premium on current income. It looks back two years. Your 2027 premium is determined by your 2025 tax return, which has already been filed. At this point, nothing changes your 2027 figure.

The reason it still matters right now is timing. We are in 2026, and your 2026 income is what will set your Medicare premiums in 2028. So if you are executing a Roth conversion this year, selling a property, or taking a sizable IRA distribution, that decision is already shaping your premiums two years out. This is the window that matters, and it is open now.

This is precisely why we treat IRMAA as a planning item rather than a line on a statement. By the time the higher premium appears, the year that triggered it has already passed. The planning has to happen two years ahead, and most people were never told to look that far in advance.

The Tax Consequence

There is a related issue that many retirees are unaware of until they are in it. Up to 85% of your Social Security benefit can be subject to federal income tax under current law, and the amount depends on your total income. The higher your income, the greater the share of your benefit that becomes taxable.

Consider what that means in practice. The COLA raises your benefit. That larger benefit, combined with your other income sources, can push more of your Social Security into taxable territory. As a result, a portion of the increase is returned to the IRS at tax time.

The situation tightens further once Required Minimum Distributions begin. If you are 73 or older and drawing from a traditional IRA, those withdrawals are treated as ordinary income. They stack on top of Social Security and investment income, which can move you into a higher bracket while simultaneously increasing the taxable portion of your Social Security benefit. A single distribution can work against you on two fronts.

This is not an unusual scenario. It is a position many retirees find themselves in, and it almost always traces back to a tax strategy built around the current year rather than the next twenty.

Why This Weighs More Heavily on Higher Earners

Step back for a moment and consider the purpose of the COLA. It exists to help Social Security keep pace with inflation. The difficulty is that the index used to calculate it does not closely reflect the actual spending patterns of retirees.

Healthcare costs tend to rise faster than general inflation. So does housing, along with many of the services people rely on more heavily as they age. So even in a year with a reasonable COLA, real purchasing power can still decline if actual expenses are increasing faster than the adjustment.

For higher earners, there is an additional dynamic that does not receive enough attention. For many of our clients, Social Security is only one component of the income picture. There is also pension income, portfolio distributions, and investment income. A significant share of that income is either fixed or does not adjust for inflation the way Social Security does. So while the Social Security benefit rises modestly each year, a large portion of total income remains flat, and its purchasing power erodes over time.

That effect compounds. In the first year of retirement it is barely noticeable. But ten or fifteen years in, if a substantial share of income has not kept pace with prices, the gap between income and expenses begins to widen, and the portfolio is left to absorb the difference.

This is why we incorporate inflation assumptions into every income plan we build. A plan that appears sound at 65 can look considerably different at 80 if the income side never kept pace. This is not intended to alarm anyone. It is a reason to plan for the effect deliberately and in advance rather than encounter it later.

What Can Actually Be Done

The encouraging part is that most of these issues are manageable when they are anticipated.

IRMAA is fundamentally a planning matter. When we know a given year will run high on income, there is room to manage it. We may spread a Roth conversion across several years rather than concentrating it in one. We may sequence distributions across accounts to remain below a threshold. The two-year lookback that catches people off guard actually works in your favor once you understand it, provided you are focused on the correct year.

The Social Security tax issue responds to the same approach. Executing conversions in the earlier retirement years, when income is naturally lower, reduces the ordinary income generated later, when Social Security and RMDs are both in play. This is a significant reason we place so much emphasis on the early retirement window. The decisions made between 62 and 72 can meaningfully shape the tax picture at 75 and well beyond.

The Medicare component largely comes down to awareness. Your 2028 premiums are being shaped by the income decisions you are making this year, in 2026. If that is not part of the conversation you are having with your advisor, it should be.

The Bottom Line

A 3% to 4% COLA appears to be a meaningful raise until you follow it through to its conclusion. Medicare takes a portion. The IRS may take another. Inflation takes a third. What remains is often still an improvement over the prior year, but a considerably smaller one than the headline suggested.

The retirees who genuinely feel the increase are those who planned around these factors in advance rather than discovering them after the fact.

So when the COLA letter arrives this fall, take the win. Just recognize that the figure that matters is the one remaining after everything else has taken its share, and the decisions that protect that figure are the ones made now, not the ones addressed in hindsight.