Great South Bay Advisors: What Your Social Security Raise Is Really Worth

In a little over two weeks, the Social Security Administration will announce the cost-of-living adjustment (COLA) for 2027. If forecasts are accurate, we will see an increase in the range of 3.4% to 3.6%. That would be the biggest bump since 2023 and a noticeable step up from the 2.8% beneficiaries received this year.

You will likely see headlines with the theme, “Seniors get biggest raise in three years!” However, before you mentally spend it, it’s worth understanding three things. First, what does the raise actually net after Medicare takes its share? Second, how can this increase quietly raise your tax bill? And third — the part almost nobody talks about — why is the COLA one of the strongest arguments for waiting to start taking Social Security benefits until later, especially if you’re married?

How the Number Gets Made

The cost-of-living adjustment isn’t set by Congress or by anyone’s judgment. It’s determined by a formula based on the average of a specific inflation index, the CPI-W, for July, August, and September compared with the same three months a year earlier.

Whatever the percentage increase is, that’s your raise, effective with the Social Security payment in January.

One wrinkle is worth paying attention to. The CPI-W measures prices paid by working households, not retirees. Retirees spend a larger share of their budgets on things like health care and housing, and those costs often rise faster than the overall index.

That’s why, when many of my clients tell me the COLA never quite feels like it covers the increases in expenses they’re actually seeing, they’re not imagining it.

The Raise, After Medicare

For most retirees, their Medicare Part B premium comes straight out of their Social Security check before it ever reaches the bank.

This means that, for most Social Security recipients, the number that matters isn’t simply the cost-of-living adjustment. It’s the adjustment they’ll see after the Medicare Part B premium increase that accompanies it.

This past year provided a painful example. The standard Part B premium jumped from $185 to $202.90 a month, nearly 10%, while the COLA was 2.8%. For many people, a significant part of the raise vanished before they saw it.

However, the outlook for 2027 is better, at least on paper. Medicare’s trustees project the standard premium will rise to about $209.50, an increase of $6.60 a month, though that’s a projection, not a final number. Medicare typically announces the official premium in November, and it is important to note that some private forecasters think it will come in higher.

Here’s how it might shake out for a hypothetical Suffolk County couple we’ll call “Jim” and “Sarah.”

Say Jim receives $2,800 a month and Sarah receives $1,700. A 3.5% COLA adds $98 to Jim’s check and $59.50 to Sarah’s, for a combined increase of $157.50. Subtract $6.60 each for the projected Part B increase, and their net raise is about $144 a month, or roughly $1,730 for the year.

That’s real money. It’s just not quite the number in the headline.

If your income is high enough to trigger Medicare’s income-related surcharges, known as IRMAA, your premium is based on your tax return from two years earlier. Decisions you made in 2025, such as a large Roth conversion or selling appreciated stock, will show up in your 2027 premium.

The Tax Bite Nobody Indexed

There is a quirk of federal law that surprises many people. Up to 85% of your Social Security benefit can be subject to federal income tax, depending on your “provisional income,” which is roughly all your other income plus half your Social Security benefits.

The income thresholds that determine this were set in 1983 and 1993, and they have never been adjusted for inflation.

As a result, every COLA pushes a few more retirees over those lines and pushes more of everyone’s benefits into taxable territory. Your raise is real, but a portion of it may end up going back to Washington in April.

There are two pieces of good news.

First, New York does not tax Social Security benefits at all.

Second, last year’s federal tax law created a new deduction of up to $6,000 per person for taxpayers 65 and older, available through 2028. It phases out for single filers with income above $75,000 and joint filers above $150,000.

Despite what you may have heard, the law did not eliminate taxes on Social Security. However, for many middle-income retirees, the new deduction offsets much of the tax on their benefits.

Why the COLA Rewards Patience

This is the part I most want readers to understand, especially those still a few years from claiming.

Each year you wait past your full retirement age — 67 for anyone born in 1960 or later — your benefit grows by 8% per year, up to age 70.

Many people hesitate to wait because they assume they’ll “miss out” on COLAs in the meantime. They won’t. Cost-of-living adjustments are applied to your benefit starting at age 62, whether you’ve claimed or not. Waiting costs you nothing on the inflation side.

Since COLA is a percentage, a larger benefit gets a larger raise in dollars every single year, for life.

Consider someone whose full retirement age benefit is $2,000 a month. Claim at 62, and the check is about $1,400. Wait until 70, and it’s about $2,480. A 3.5% COLA adds $49 to the first check and nearly $87 to the second.

Over a 20- or 25-year retirement, that gap compounds into a very large difference.

It helps to think of Social Security for what it really is: a lifetime income stream, backed by the federal government, with a built-in inflation adjustment. Try to buy that from an insurance company, and you’ll find that inflation-adjusted annuities are hard to come by and expensive when you can find them.

Delaying Social Security is, in effect, the least expensive way to “buy” more of it.

Waiting isn’t right for everyone. If your health is poor, if you have reason to believe your life expectancy might be shorter than average, if you need the income now, or if you’re single with a family history of shorter lifespans, claiming earlier can be entirely reasonable.

However, this should be a decision backed by logic, not the default.

The Survivor Question Couples Get Wrong

For married couples, there’s an even bigger reason to think about this decision carefully.

When one spouse dies, the household doesn’t keep both checks. The survivor keeps the larger of the two benefits, and the smaller one disappears.

That means the higher earner’s claiming decision isn’t really an individual decision. It sets the size of the check the surviving spouse may live on for the rest of his or her life, with every future COLA built on top of it.

I see this play out too often. A husband, typically the higher earner, claims at 62 because he wants to “get it while he can.” He passes away at 78. His widow, who may live into her 90s, is left with a permanently smaller check in one of the most expensive places in the country to grow old, with a property tax bill that didn’t get any smaller when he passed.

When the higher earner delays until 70, it functions like a life insurance policy for the surviving spouse, one that adjusts for inflation every year. That is why it is important to run the numbers as a couple, not as two individuals.

The reality is that we don’t have a crystal ball. We don’t know what investment returns and inflation will look like, and we don’t know how long any given person will live. The best we can do is use the averages and try to make a well-informed decision.

There is no “right” answer, and there are a lot of factors to consider. This will look different for every family.

What to Do Before the Announcement

A few practical steps for the weeks ahead:

If you haven’t already, set up an online account at SSA.gov and check your earnings record for errors. Mistakes happen, and they’re far easier to fix now than after you’ve claimed.

If you’re not yet collecting, revisit your claiming plan with the survivor benefit in mind. If you’re married, it is important to look at both of your benefits together, not as two separate issues.

If you’re already collecting, budget around the net raise after Medicare, not the headline COLA. Your official notice of your new benefit amount typically arrives in December, both by mail and in your online account.

If you’re subject to IRMAA and your income has dropped because of retirement, the death of a spouse, or another life-changing event, you can ask Social Security to reconsider your surcharge using Form SSA-44.

And if the COLA will push more of your benefits into taxable income, consider whether your federal withholding, set on Form W-4V, still makes sense for 2027.

A raise is always welcome. However, for retirees, the smarter question isn’t how big it is. It’s how to make sure you — and the person you share your life with — get the most out of every future raise to come.

Robinson Crothers is Managing Partner at Great South Bay Advisors in Holbrook. This column is for general educational purposes and is not individualized investment, tax, or legal advice. Securities and investment advisory services are offered through Osaic Wealth, Inc., Member FINRA/SIPC.

Great South Bay Advisors and Osaic Wealth, Inc. are not affiliated.