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At a rally in Wasilla, Alaska, on Oct. 13, President Donald Trump promised that once the war with Iran ends, prices will “come tumbling down,” according to Reuters. (1)
The next day, the government sent 76 million Americans a different message.
On Oct. 14, the Social Security Administration announced a 3.6% cost-of-living adjustment for 2027. (2) CBS News notes it’s the biggest annual boost in four years. (3) It reflects inflation: Consumer prices rose 3.7% in the 12 months through September, according to the Bureau of Labor Statistics. (4)
I’ve been a CPA since 1981, and here’s how I think about a COLA: It isn’t a raise. It’s simply paying you back for prices that already went up.
SSA says the average retirement benefit will rise by $75 a month. (2) That’s roughly $900 a year, which is the same figure the Committee for a Responsible Federal Budget estimates. (5) Nice, but here are four reasons you’ll keep less of it than you think.
1. It pays you back for last year, not next year
The COLA is based on the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year. (6)
In other words, it looks backward. If the president is right and prices fall, you’ll come out ahead. If he’s wrong, January’s bigger check is already chasing the next round of increases.
And some of the bills retirees can’t avoid are rising faster than 3.6%. Over the past year, gasoline jumped 34.2% and electricity rose 4.4%. (4)
Shannon Benton of the Senior Citizens League put it plainly to CBS News: “The bottom line is that seniors aren’t getting ahead.” (3)
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2. Medicare takes the first bite
Most people get their Medicare Part B premium deducted automatically from their Social Security benefit payment. (7) So before your raise hits your bank account, Part B gets its cut.
The standard Part B premium is $202.90 a month in 2026. (8) The 2027 premium hasn’t been announced yet. SSA says the 2027 premium amount will be available in your my Social Security Message Center starting in late November. (2)
The Medicare trustees’ latest projection, as reported by Kiplinger, puts the 2027 Part B premium at $209.50, up $6.60 a month. (9) If that holds, a $75 raise becomes about $68.40 before anything else comes out.
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3. The yardstick doesn’t measure what you buy
The COLA tracks an index built around urban wage earners, not retirees. Some advocates want to switch to the CPI-E, which they say better reflects what seniors actually spend.
Max Richtman of the National Committee to Preserve Social Security and Medicare told CBS News, “We favor the adoption of the CPI-E (Consumer Price Index for the Elderly),” which he said “calculates the impact of inflation on seniors’ true living costs.” (3)
I wouldn’t wait for it to rescue you. Social Security’s own actuaries estimate that switching to the CPI-E would raise the annual COLA by about 0.15 percentage points, on average. (10) On the average benefit, that works out to about $3 a month. Pocket change.
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4. Uncle Sam may take a bigger cut
This is the part that’s easy to overlook. Up to 85% of your Social Security benefits can be taxable once your income passes certain levels. (11)
Those levels start at $25,000 for single filers and $32,000 for married couples filing jointly. (11) And according to the Congressional Research Service, “None of the thresholds is indexed for inflation or wage growth.” (12)
So over time, COLAs can nudge more retirees over the line. Your benefit goes up with prices, but the tax tripwire stays put.
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My honest take
I’m glad retirees are getting 3.6%. I’m also a Social Security recipient, and I’d certainly rather have it than not.
But don’t spend it twice. Treat the raise as money that’s already spoken for, because it is. Wait for your Medicare notice in late November, then figure out what’s actually left.
If prices really do come tumbling down, wonderful. You’ll have a cushion. If they don’t, you’ll be glad you didn’t count on it.
Politicians promise lower prices. Your budget has to work with the prices you’ve got.
Sources: 1. Reuters; 2. Social Security Administration; 3. CBS News; 4. Bureau of Labor Statistics; 5. Committee for a Responsible Federal Budget; 6. Social Security Administration; 7. Medicare.gov; 8. Centers for Medicare & Medicaid Services; 9. Kiplinger; 10. SSA Office of the Chief Actuary; 11. IRS; 12. Congressional Research Service
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