Your 2027 raise is set. What will you keep?
October 16, 2026
Listen Now
Subscribe
Go Deeper
A plain-English guide on this topic:
- Why Social Security Is TaxedThey taxed it to build it, then taxed it again. David Schaeffer walks through why your benefit was tax-free for almost fifty years, the 1983 and 1993 laws that changed it, the income lines that never moved, the honest double-tax answer, and what the 2025 law really did.
Ready to talk with an advisor?
The advisors at American Retirement Advisors have been having these conversations for over 25 years. A no-cost discovery session is the fastest way to find out where you actually stand.
Schedule a Discovery Session
Show Notes
Eddie and Betty's Conversation
Welcome to The American Retirement Advisor podcast. I'm here with Eddie, as always, and we are talking today about something that landed in a lot of inboxes this week: Social Security just announced the cost-of-living adjustment for 2027, and I have thoughts.
Glad to be here. And yes, this one is worth sitting down and actually walking through, because the headline number and the number that shows up in your bank account are not always the same thing.
Okay so the headline. What is it?
3.6%. That is the 2027 COLA. Starts with benefits paid in January, and it reaches nearly 72 million beneficiaries.
That's not a small announcement.
No. And in dollar terms, the average retired worker goes from about $2,095 a month to about $2,170. So roughly $75 more a month.
Seventy-five dollars. That is a tank of gas, maybe two dinners out, depending on where you live.
Real money. And for a couple with both receiving benefits, the average goes from about $3,238 to $3,355.
So closer to $117 more for the household.
Right. And then there is the maximum benefit for someone retiring at full retirement age, which goes up to $4,188 a month.
That is a pretty big number at the top end.
It is, but most people are not at the maximum. The average is the more useful figure for most listeners.
Fair. Now, Ian Schaeffer's piece makes this point early and I want to make sure we say it out loud: the 3.6% is at the top of the page, not necessarily what lands in your bank account.
And that gap is the whole story, really.
So what takes a bite out of it before it gets to you?
The biggest one for most people is Medicare Part B. That premium comes straight out of your Social Security payment automatically for most people.
So it never even passes through your hands.
Exactly. The standard Part B premium right now in 2026 is $202.90 a month. And here is the thing: we do not know what the 2027 premium will be yet.
Wait, we know our raise but we don't know what gets subtracted from it?
The article notes that last year's premium was announced in mid-November. So we are a few weeks away from knowing the number that decides how much of your raise you actually keep.
That is a little like getting told you got a bonus at work before anyone tells you how much goes to taxes.
That is exactly the right picture. You know income went up, you just do not know net yet.
Okay, so Part B premium is one thing. What else?
If your income is higher, you also pay income-based surcharges on top of the standard premium, for both Part B and drug coverage. Those come out of the check too.
And for 2027, they're calculated from your 2025 tax return?
That's right, according to the article. So decisions you made two years ago on your taxes show up in your Medicare costs in January.
There is a delay built into the whole system that I think a lot of people don't realize.
Most don't. And then there is a third one: tax withholding. If you have chosen to have federal taxes withheld from your Social Security payment, a bigger benefit at the same percentage means a bigger withholding.
So the raise automatically generates a little more of that if you haven't changed anything.
Right. Social Security lets you choose 7, 10, 12, or 22 percent. Whatever you picked, it applies to the new, higher amount.
I want to stay on the tax piece for a second because the numbers in Ian Schaeffer's article genuinely stopped me.
The 85% thing?
Yes. Can you explain that, because I think a lot of people assume Social Security just isn't taxed.
For some folks it's true, but for many retirees who have other income, up to 85% of their benefits can be taxable.
Right, it's not an 85% tax rate -- 85% of the benefit is what gets counted.
That's how it works, per IRS Publication 915 -- you take half of your benefits and add all your other income together, and if that total is above $34,000 for a single person, or $44,000 for a married couple filing jointly, up to 85% of your benefit is taxable.
Thirty-four thousand dollars. That is not a high bar.
It is remarkably low for someone who has saved well for retirement. If you have a pension, some investment income, maybe a little IRA withdrawal, you can hit that pretty easily.
So the people who did everything right, saved diligently for decades, they're the most likely to owe tax on their Social Security.
That's the irony, yes. And the article makes this point clearly: a raise in your benefit usually means a raise in your taxable income too.
Which is worth knowing before you go update the budget and start spending the extra seventy-five dollars.
Worth knowing for sure.
Are there lower thresholds too, or is it all or nothing?
There's a middle zone before you get there. If that same combined calculation lands somewhere between those figures and the lower cutoffs -- $25,000 on the single filer side, $32,000 on a joint return -- up to 50% of your benefit can be taxable. So you've really got two separate levels to think about: the 50% level and then that higher 85% level kicking in above it.
Most people listening, if you have significant retirement savings, are probably in the 85% zone without knowing it.
That tracks with what I'd expect. If you're not sure where you land, that's a good question for one of our advisors at American Retirement Advisors. The exact calculation depends on your specific income mix.
Let's talk about the other numbers in the article, because there were a few that caught my attention for people who might still be working.
The earnings limits.
Right. So if you are collecting Social Security but also still working before full retirement age, there are limits on how much you can earn before it affects your check?
Yes, and the 2027 number is $25,560 a year. If you earn above that, Social Security withholds $1 of benefits for every $2 over the limit.
So you're not losing the money forever, it's just withheld?
The mechanics of what happens to those amounts and when you get credit for them is a question I'd point you to the team on, because the details matter a lot there and I want to get it right.
Fair enough. What about the year you reach full retirement age?
Different rule for that year. The limit jumps to $67,920, and it only counts earnings in the months before you hit that birthday. And above that threshold it's $1 withheld for every $3, not every $2.
So the closer you get to full retirement age, the more forgiving the rules get.
And then the moment that birthday arrives, the earnings limit just disappears entirely. Gone.
Just gone completely.
None. Work as much as you want, and Social Security won't withhold any of your benefits for it.
That is a meaningful shift. The article also mentioned a number for people still paying into Social Security, the wage base?
It goes up to $192,300 for 2027. So if you earn above that, you stop having that tax applied to the excess.
Okay let's get to what I think is the most useful part of Ian Schaeffer's piece, the actual four steps he lays out. Because this can feel overwhelming and he kind of packages it up neatly.
He does. And the first one is simple: watch for your COLA notice in late November and write down the new gross benefit.
And the article mentions you can see it online through your my Social Security account, up to three weeks before the paper notice shows up.
So if you have that account set up, you'll know earlier. Good reason to have it if you don't.
What's step two?
Wait. Specifically, wait for the 2027 Part B premium announcement and any surcharge letter before you set next year's budget. The net number is the one you'll live on, not the gross.
So basically: don't plan off the headline 3.6%. Wait until you know all the subtractions.
That is the whole lesson in one sentence.
What's three?
Check your tax withholding. If your benefit and your other income both went up, the percentage you picked a few years ago may not fit the situation anymore.
So it's not set-it-and-forget-it.
Never really is.
And four?
This one is the one I find most interesting. It says to look at the rest of your 2026 income before December 31, because what you do between now and the end of the year shapes your 2028 Medicare surcharges.
Wait, 2028? Decisions made this year affect costs two years out?
Because of the two-year lookback on income for the surcharge calculation. Your 2026 tax return determines what you pay for Medicare in 2028.
That's the part of retirement planning that trips people up. You're always managing a moving target that is offset by two years.
It's a little like steering a boat. The effects show up downstream, not immediately.
So things like Roth conversions, IRA withdrawals, even charitable giving before December 31 can all have ripple effects into Medicare costs.
Right, and the article specifically mentions one strategy: if you're going to give to charity, a gift sent straight from an IRA can let you give without adding to that income total that drives the surcharge.
So it doesn't count the same way.
That's the idea the article raises. The exact mechanics are worth a conversation with an advisor before you do it, because how it's structured matters.
This is the kind of thing where the difference between doing it right and doing it loosely is real dollars in future Medicare premiums.
That's why Ian Schaeffer frames the whole piece the way he does. It's not about being anxious about the raise, it's about knowing which part of it is yours to spend.
I love that framing. It's a good problem to have, he says.
It is. Nobody is complaining about getting more money from Social Security. But the households who benefit most are the ones who did the math before January.
Not when that deposit shows up and they wonder why it's less than they expected.
Right. You want to know the net number ahead of time, not be surprised by it.
Can we just summarize the timeline for listeners? Because there are a few things happening in November that they need to watch for.
Sure -- so the COLA notice lands late in the month, and remember we mentioned that portal where it shows up a few weeks early if you want to get ahead of it -- or just wait for it to arrive by mail. Also, if it follows last year, the 2027 Part B premium gets announced mid-month. And if you're subject to surcharges, you'll get a separate letter about that.
So November is when all the pieces come together, and then you have December to make any moves before year-end.
Which is a tight window. If you want to do a Roth conversion, revisit withholding, or make a charitable gift from an IRA, December goes fast.
It really does. The holidays eat it alive.
Every year.
So if there is one thing people should do this week after listening to this, what is it?
Set a reminder for mid to late November to check your my Social Security account and watch for the Part B announcement. Don't update your budget until you have both numbers.
And if the thought of tracking all of this, the gross benefit, the Part B premium, the surcharge letters, the withholding, the year-end income decisions, if that feels like a lot to hold in your head at once, that is completely normal and that is what the team at American Retirement Advisors is there for.
Second set of eyes on the 2027 income plan is not a bad idea for anyone.
Ian Schaeffer says as much at the end of the piece. And you can reach American Retirement Advisors at 602-281-3898.
That's 602-281-3898. They'll look at whether your plan accounts for all of this.
Because the raise is real, and it matters. Seventy-two million people are getting it in January. Just make sure you know your number, not the average, not the headline, yours. Thanks for spending this time with us today, and we will see you next time.