I'm a Financial Planner: The COLA Trick Saving Retirees Nearly $1,150 a Year
Social Security's 2027 cost-of-living adjustment is scheduled to be announced Oct. 14, but the headline percentage won't tell retirees everything they need to know. What matters is how much of that increase actually makes it into their bank account after Medicare premiums and other deductions — and whether higher income pushes them into a Medicare surcharge bracket.
For a retiree near an Income-Related Monthly Adjustment Amount (IRMAA) threshold, even a modest increase in income can have a big impact. In 2026, the first surcharge added nearly $1,150 a year per person. The 2027 amounts haven't been finalized, but staying below the threshold could be worth more than the Social Security raise itself.
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Look at Your Net COLA, Not the Headline Number
Hans Goldstein, founder of the Retirement Literacy Foundation, teaches retirees to focus on what lands in their bank account.
"The trick I teach is the net COLA: The 2026 increase was 2.8%, but the standard Medicare Part B premium rose $17.90 a month, from $185 to $202.90. A retiree with a $2,000 check got about $56 of raise and kept about $38 of it," he said.
Will Allen, CRPC, founder and financial advisor at Sentara Capital, gives clients a similar warning.
"One thing I do tell retirees is not to automatically treat a COLA as extra spending money," he said. "Medicare premiums, taxes and higher everyday expenses can eat up much of the monthly increase."
Based on early projections, it looks like there will be similar issues in 2027. Estimates put next year's COLA around 3.6%, while the standard Part B premium is projected to reach $209.50.
Where the Raise Leaks Out
Xintian Wang, CPA and senior tax manager at Alexander Accountants, CPAs, sees Medicare as the place to focus.
"The 'trick,' if there is one, isn't with the COLA, but rather what happens to it," Wang explained.
Part B premiums come straight out of most Social Security checks. Higher earners also face income-related surcharges on top of the standard premium.
"While you can't actually change the COLA, you can change what decreases it. And that's where the dollars are," Wang said.
What Staying Under the Surcharge Line Is Worth
For 2026, Medicare's income-related surcharge starts when modified adjusted gross income exceeds $109,000 for single filers, or $218,000 for married couples filing jointly. Medicare generally uses tax-return information from two years earlier, so 2026 premiums are generally based on 2024 income.
The first IRMAA bracket adds $81.20 a month to the standard Part B premium and another $14.50 a month to the Part D premium. That's $95.70 a month, or about $1,148 a year, for each person in that bracket.
For a married couple who are both on Medicare, that could mean roughly $2,300 in additional premiums over a year if their income crosses into that first bracket.
How To Keep Income Below the Threshold
"To reap the most from any COLA raise, keep income low enough to avoid the IRMAA surcharge on Medicare premiums or, better yet, use a Roth conversion in a low year," Wang said.
Taking spending money from a Roth instead of a traditional IRA works the same way, since qualified Roth withdrawals don't count toward the income Medicare uses to set premiums. More of each raise stays in your wallet as opposed to becoming what Wang called "leakage."
Timing matters here. Due to Medicare looking back two years, income decisions made this year will shape premiums in 2028.
Before the 2027 Raise Arrives
Once the official COLA is announced Oct. 14, plug your own benefit into the math. Subtract the new Part B premium, check where your income sits against the surcharge brackets and treat whatever's left as your real raise before you decide how to spend it.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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