Retirement Planning | Strategic Tax Planning | October 2026
The Social Security Administration announced a 3.6% cost-of-living adjustment (COLA) for 2027. While higher benefits can help retirees manage rising costs, the increase may also change how much of their Social Security income is taxable. Understanding this interaction is an important part of retirement income planning.
How much will Social Security benefits increase in 2027?
The 3.6% increase begins with January 2027 benefits. The Social Security Administration estimates the average retired worker benefit will rise by approximately $75 per month, from $2,095 to $2,170.
2026 monthly benefit | Estimated 2027 benefit | Monthly increase |
$1,500 | $1,554 | $54 |
$2,000 | $2,072 | $72 |
$2,500 | $2,590 | $90 |
$3,000 | $3,108 | $108 |
These are gross benefit examples. Medicare premiums, income tax withholding and other deductions may change the amount deposited into your account.
Can a Social Security COLA increase your federal income taxes?
Yes. Federal rules use “combined income” to determine how much Social Security is included in taxable income. Combined income generally equals adjusted gross income, plus tax-exempt interest, plus one-half of Social Security benefits. Depending on filing status and income, up to 85% of benefits may be taxable. That does not mean an 85% tax rate applies.
For married couples filing jointly, the key combined-income thresholds are $32,000 and $44,000; for single filers, $25,000 and $34,000. Unlike ordinary income tax brackets, these thresholds are not indexed annually for inflation. Therefore, even when other income stays flat, a COLA can increase taxable Social Security.
Example: What happens to a retired couple when benefits rise but other income stays the same?
Consider a married couple filing jointly, with $40,000 in annual Social Security benefits and $30,000 in other income. Assume no tax-exempt interest and no other adjustments to the Social Security taxation formula.
Income measure | 2026 | 2027 |
Social Security benefits | $40,000 | $41,440 |
Other income | $30,000 | $30,000 |
Combined income | $50,000 | $50,720 |
Social Security included in taxable income | $11,100 | $11,712 |
Their gross Social Security benefits increase by $1,440, but the portion included in federal taxable income rises by $612. The actual additional tax depends on deductions, tax brackets and other individual factors. This is an illustration of the federal benefit-taxation formula, not a complete tax-return projection.
Planning insight: Retirement income and taxable income are not the same. A coordinated withdrawal strategy can help retirees understand the consequences of receiving income from different accounts.
How can Roth conversions change the taxation of Social Security?
The taxable portion of a Roth conversion generally increases adjusted gross income. For a person already collecting Social Security, this can cause more benefits to become taxable and may affect Medicare premiums later. Conversely, Roth conversions completed in suitable years before Social Security or required minimum distributions begin may reduce future tax-deferred balances. Whether a conversion helps depends on multiyear tax projections, not just the current marginal bracket.
How do required minimum distributions and qualified charitable distributions fit into the plan?
Required minimum distributions (RMDs) from traditional retirement accounts generally increase taxable income and can increase the taxable portion of Social Security. Reviewing withdrawal timing before RMDs begin may offer planning flexibility. For eligible IRA owners, a qualified charitable distribution (QCD) can satisfy some or all of an RMD without including the qualifying amount in adjusted gross income, subject to IRS requirements.
Could Medicare premiums offset part of the COLA?
Yes. Medicare Part B premiums are often deducted from Social Security payments. Higher premiums can reduce the net increase. Higher-income beneficiaries may also owe income-related monthly adjustment amounts (IRMAA) for Parts B and D. Medicare generally uses income tax information from two years earlier, so a large taxable transaction in 2027 may influence 2029 Medicare premiums. The 2027 Part B premium should be verified when CMS publishes its final figures.
What changes if you work while collecting Social Security?
For beneficiaries younger than full retirement age, Social Security applies an earnings test to wages and net self-employment income. The 2027 limit is $25,560 for those below full retirement age all year, with $1 in benefits withheld for every $2 above the limit. In the year full retirement age is reached, the limit is $67,920 for earnings before that month, with $1 withheld per $3 above the limit. Beginning with the month full retirement age is reached, there is no earnings limit. Withheld benefits may be reflected in a later benefit recalculation.
What changes for workers paying Social Security payroll taxes?
The maximum annual earnings subject to Social Security tax increases from $184,500 in 2026 to $192,300 in 2027. The employee and employer Social Security tax rates remain 6.2% each.
What questions should retirees ask before 2027?
• Will the COLA increase the taxable portion of my benefits?
• Are my IRA withdrawals, Roth conversions and RMDs coordinated across several years?
• Could a taxable transaction affect future Medicare IRMAA premiums?
• Should I revisit tax withholding or estimated tax payments?
• How much will my actual monthly deposit change after Medicare deductions?
Frequently asked questions
Is the COLA itself a separate tax?
No. The increase becomes part of your Social Security benefits; the usual federal rules determine how much of those benefits is included in taxable income.
Do qualified Roth IRA withdrawals make Social Security more taxable?
Generally no. Qualified Roth IRA distributions are not included in adjusted gross income. Different rules can apply to nonqualified distributions.
Does the COLA matter if I have not claimed benefits yet?
Yes. COLAs are generally reflected in benefit calculations for eligible individuals who have not started receiving payments, although individual results vary.
What is the key retirement planning takeaway?
A 3.6% Social Security increase is useful, but the amount you keep depends on taxes, Medicare costs and the way your retirement income sources work together. Strategic tax planning considers those interactions over multiple years rather than focusing only on the current year.
At Aschberger Financial Services, Social Security analysis, retirement income strategies and strategic tax planning are part of our financial planning process. Contact our office to discuss how these changes may affect your retirement plan.
Sources
Social Security Administration, 2027 COLA Fact Sheet: https://www.ssa.gov/news/en/cola/factsheets/2027.html
Social Security Administration, Benefits Planner — Income Taxes and Your Social Security Benefit: https://www.ssa.gov/benefits/retirement/planner/taxes.html
Internal Revenue Service, Topic No. 423 — Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/taxtopics/tc423
Medicare.gov, Medicare Costs: https://www.medicare.gov/basics/costs/medicare-costs
Neither Osaic Wealth, Inc., nor its representatives, offer tax or legal advice. Please consult your tax or legal professional regarding your individual circumstances.