What we know about the 2027 COLA

The official Social Security cost-of-living adjustment for 2027 hasn't been announced yet. One widely followed estimate from The Senior Citizens League is approximately 3.6%, which would be higher than the 2.8% adjustment for 2026 and the highest since 2022. But it is still only an estimate.

The Social Security Administration calculates the COLA using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Since 1983, the adjustment has generally compared average inflation in July, August, and September of the current year with the same three months of the prior year. Using the third quarter gives the government time to announce the new COLA in the fall so it can take effect at the start of the year.

A thermometer, not a gift

A higher COLA sounds like good news because your check goes up, but its purpose is to help benefits keep pace with inflation. A larger adjustment generally means the prices in the underlying index have already risen. For a retiree spending more than $250,000 a year, changes in long-term inflation can affect the plan far more than a modest increase in Social Security. That's why COLA is most useful as an annual planning signal, in three areas.

1. Taxes

Social Security taxation depends on your overall income picture. For many affluent retirees, up to 85% of benefits may already be included in taxable income. A larger COLA won't push that above 85%, but it does increase the dollar amount that's taxable, and that income stacks on top of IRA withdrawals, RMDs, interest, dividends, gains, rental income, and pensions.

Consider a couple receiving $75,000 a year in combined benefits. A 3.6% increase adds about $2,700 a year. On its own, that's not a planning issue for a high-income household. That's the point: the COLA is usually viewed in isolation and ignored, when it's really a good reason to revisit the household's annual income projection.

The taxation of benefits is largely formula-driven. What's more controllable is everything around it: which accounts fund spending (taxable, traditional IRA, or Roth), when capital gains are realized, and whether charitable gifts are made in cash, with appreciated securities, or through qualified charitable distributions. The new benefit belongs in that projection, ideally before the year begins rather than when the return is being prepared.

2. Medicare

A Social Security COLA doesn't directly set Medicare premiums, but healthcare costs and premiums can also rise, so some of the extra income may be offset. For higher-income retirees, the bigger issue is IRMAA, the income-related monthly adjustment amount, an additional premium paid by higher-income beneficiaries.

Medicare generally looks back two years. For example, your 2026 income will generally determine your 2028 IRMAA. IRMAA uses income tiers, and for a married couple both on Medicare, the surcharge may apply to each spouse.

• If you're well above a threshold, big changes just to avoid a surcharge may accomplish little.
• If you're close and have flexibility, it may be worth timing a capital gain differently, funding spending from another account, or sizing a Roth conversion with both taxes and premiums in mind.

The goal isn't to minimize IRMAA at any cost. As the saying goes, don't let the tax tail wag the dog. The goal is the best net outcome.

3. Inflation, the biggest issue

At $3 million and above, the impact of inflation on spending will dwarf any change in Social Security income. A household spending $250,000 a year would need roughly $305,000 in 10 years at 2% inflation, but roughly $370,000 at 4%. That's about a $65,000 annual difference by year 10.

Your personal inflation rate may also differ from the CPI. Travel, healthcare, insurance, housing, and household services can all behave differently. If your plan assumed 2% and your expenses have been rising closer to 4%, that deserves attention. It doesn't automatically mean cutting spending or changing the portfolio, but the plan should reflect reality. It's also worth revisiting the investment allocation: becoming too conservative can introduce its own risk when a portfolio needs to last 25 or 30 years.

Why Social Security still matters

Even if it's a small share of your income, Social Security has features that are hard to replicate: lifetime benefits under current law, cost-of-living adjustments, and a survivor component. After one spouse dies, the survivor generally keeps the higher of the two applicable benefits, not both, which makes claiming a household decision. There's no universally correct claiming age; it's best evaluated within the full retirement plan.

What to do with the 2027 COLA

1. Update Social Security income in your cash flow and tax projections once the official number is released.
2. Review IRA distributions, capital gains, interest, dividends, charitable giving, Roth conversions, and other income events.
3. Check potential IRMAA exposure, remembering the two-year look-back.
4. Revisit which accounts fund your spending and how that interacts with taxes and Medicare.
5. Compare your plan's inflation assumptions with what you're actually experiencing.

None of these decisions should be made based on COLA alone. But each fall's announcement is a natural reminder to ask whether the assumptions behind your retirement plan still match the financial world you're actually living in.