Social Security’s Biggest Raise in Three Years: Is It as Good as It Sounds?
Retirees are set to receive the biggest raise to their Social Security checks in three years. But, is that really as good as it sounds?
2027 Social Security COLA: How the 3.6% Cost-of-Living Adjustment Is Calculated
Last week, the Social Security Administration announced a 3.6% Cost-of-living adjustment for 2027. It will be the largest increase since 2023, and lands among the top 20 highest since 1975. The COLA is calculated each year by taking the data from the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, over the 3rd quarter months of July, August, and September, and comparing the average to the same reading a year ago.
How Much Will Your Social Security Check Really Increase After Taxes?
That sounds like good news, until you apply the real numbers. The SSA says the increase will add, on average, about $75 a month to a retiree’s payment, boosting the average check from $2,087.52 to $2,162.67. Not exactly eye popping. But, wait, we still have to take taxes out of that. That amount would greatly depend on your tax bracket, but let’s assume an effective tax rate of 10%. Only 85% of the benefit is taxable, so, trim off another $6 or so for taxes.
Rising Medicare Part B Premiums Cut Into Your COLA
But, wait, the Medicare Part B premium comes out of your Social Security check, and those premiums usually go up. The Centers for Medicare and Medicaid Services will announce the 2027 cost-of-living adjustment for that next month, but, projections are actually more modest than usual. Premiums are expected to go up from $202.90 to $209.50.
Why the Social Security COLA Won’t Keep Up With Inflation
So, the Social Security COLA will really only put, on average, another $60 in your pocket each month. Bottom line, it won’t keep up with the real increase in prices that a retiree faces.
The 2026 Senior Survey from the Senior Citizens League found that 89% of respondents said the 2026 COLA was too low and felt their benefits would fall behind inflation.
Social Security Alone Won’t Be Enough for Retirement
There’s not much you can do if you are already receiving Social Security and no longer working. But, this highlights once again, that Social Security will not be enough for your retirement. You can count on it for foundational income that you can’t outlive. But, retirement is ultimately up to you.
Investing to Outpace Inflation in Retirement
It also highlights that Social Security will not keep up with increasing cost of living that everyone should expect in retirement. This points toward a need for an investment strategy that stays committed to asset classes like stocks, and real estate, to outpace inflation. Not with all your investments, but with the portion of your portfolio you won’t need in the short term.
Building a Retirement Income Plan That Grows Over Time
And at the end of the day, it highlights the need for a retirement income plan that blends your retirement savings with your guaranteed income sources to create a monthly income stream that increases over time.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
