Episode 58
A High-Net-Worth Retiree's Walkthrough of the New 3.6% Social Security Increase for 2027
Published on Nov 5th, 2026
Episode Summary
Episode 58 of Retirement Tax Matters breaks down the 2027 Social Security COLA (cost of living adjustment) and what the 3.6% increase means for retirees and pre-retirees with $2M to $8M. Garrett Crawford, CFP® and Adam Reed discuss the new numbers on the annual fact sheet, including why the maximum monthly benefit at full retirement age only moved up by $36 to $4,188 while current beneficiaries receive the full percentage adjustment. The conversation covers the jump in the taxable wage base to $192,300, which creates an added tax burden for high earning professionals and self-employed business owners. Garrett explains how COLAs credit to your record starting at age 62 even if you have not claimed, and why coordinating filing dates between spouses remains an effective way to protect a surviving partner. The discussion also ties into fall tax planning. While Social Security may not be the largest asset in a $2M-$8M retiree's portfolio, its guaranteed annual inflation adjustment makes it one of the highest quality assets they own.
Key Tax Planning Question
Question 1: Is a 3.6% Social Security COLA good by historical standards?
Looking back over the 52-year history of Social Security cost-of-living adjustments since 1975, the long-term average COLA is approximately 3.73%.
By that historical benchmark, the 3.6% adjustment announced for 2027 is essentially right in line with the long-term average. It is not an extreme spike like the adjustments we saw in the late 1970s and early 1980s, but it is certainly not a flat year either.
The reason 3.6% feels significant to a lot of retirees today comes down to what we experienced over the last decade. When I started working in the financial planning industry in 2013, inflation was barely a topic of conversation. Across the entire decade between 2010 and 2020, the average Social Security COLA was just 1.5%. We had years like 2010 and 2015 where the adjustment was 0%, and 2016 only came in at 0.3%. Retirees spent ten years getting used to the idea that Social Security adjustments were basically pocket change.
Coming out of 2020, that dynamic changed quickly. Since 2021, the average annual adjustment jumped to 4.45%. Compounded together, benefits have grown by over 31% across that stretch, which is why 3.6% feels much more noticeable today.
While 3.6% reflects broad national inflation, that does not necessarily mean every retiree is coming out ahead in their daily budget. The Social Security Administration bases this adjustment on the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as the CPI-W. That index tracks working-age spending habits, but retirees spend their money differently. Manufactured goods and technology like televisions or computers have often grown slower than headline inflation, while expenses that seniors rely on heavily, like healthcare, Medicare premiums, insurance, and home maintenance, consistently climb faster.
For a household with a $2M to $8M portfolio, a 3.6% increase is welcome, but it does not change your day-to-day lifestyle. Social Security does a very reliable job of tracking broad national inflation over a multi-decade timeline, but it is your investment portfolio, not your monthly government check, that has to carry the heavy load of preserving your family purchasing power.
Full Episode Transcript
Adam: Good morning and welcome to Retirement Tax Matters. I'm Adam Reed. This is Garrett Crawford, our resident CFP® professional. This morning we are jumping into a topic we have touched on maybe a time or two before, but it is such an interesting topic because there are so many different ways you can look at it and so many different things you can emphasize. So today we are talking about Social Security. I know there is...
Garrett: I thought you were going to say UT football.
Adam: UT football, I don't know if we want to talk about it right now after the big loss to South Carolina. We are on a bye week. It is just extra time to think about a loss. So anything to get my mind off of Tennessee football, let's do it.
Garrett: Social Security is the ticket, baby.
Adam: If Social Security will get my mind off of it, let's do it. Today will just be an intro, a little bit of a crash course. There has just been an announcement on the COLA adjustment. I think it was last year we did an episode around this time and the government was shut down, so we did not have it in such a timely manner.
Garrett: I barely remember that.
Adam: A lot has happened in the last year. Today, maybe just kick us off with where we are going in this episode and touch on this new COLA adjustment. Some people may already be aware of it. Some people may be waiting for that information. What is that COLA adjustment, and tell us a little bit about where we are going today. Give us a roadmap.
Garrett: I remember when I started this, I was 25 years old 14 years ago, and I didn't know a lick about Social Security. A little bit of the backstory here is my father-in-law hired me out of engineering school, and he wanted help giving advice to our existing clients in the realm of Social Security. He didn't know a lot about it, so he was like, "I will hire this guy and he will read books and go for it." I remember when I found out and learned that Social Security releases this information every October. I thought, "I have hit the jackpot. This is great. I am probably the only 25-year-old in the country tracking cost of living adjustments for Social Security." I have done it every year, and it is amazing just how much time has passed. I think one of the things that we really underestimate in retirement planning and financial planning is the impact of inflation. I have said it before in a different podcast. I remember the first time I had access to financial planning software, the two big things were, one, long-term care can really butcher your plan. If you don't have long-term care insurance or a plan to pay for it, and you go into a nursing facility for more than 10 years, that is going to impact anybody's plan no matter what your wealth level is. But the second one was the impacts of how small amounts of inflation over an entire retirement can make a big dent. I have seen in my 14 years of tracking Social Security, the numbers get a lot bigger than I would have expected from 2013 to 2026, going into 2027. It is not just Social Security. I remember I bought a house in 2015, and as a dutiful financial planner, I wondered what my house value would be worth at retirement. It is almost there, and that was 10 or 11 years ago. Inflation has been such an important, influential thing for people getting ready to retire or recently retired, with huge impacts. Today, I thought maybe we would start off by going through that annual announcement they go through every year. Adam, I have got it here in front of me. Transparently, we were going to try to get all the technology set here, and we ran into a couple of snafus. We will link to this beneath the podcast so you can find it. You may have already seen it, but I am just going to go through this real quickly as a financial planner who has been looking at this COLA fact sheet every year for 14 years. I will share what I think about in light of a $2 million to $8 million high-net-worth retiree, how I process it, and when I get done, if you want to ask a couple of follow-up questions, we can do that. The big number that I typed into YouTube podcasts this morning, there are tons of podcasts and shows about the latest Social Security announcement, was a 3.6% cost of living adjustment for 2027. So going into January of next year, if you are on Social Security or about to go on Social Security, you are going to see a 3.6% inflation adjustment, which is no small amount historically. In fact, it is higher than historical inflation amounts. As I go through this fact sheet, it has a couple of numbers here that I wanted to highlight. The first one has nothing to do with people on Social Security, for the most part. It is for people who are still working. What you will see is that the tax rate for people who pay into the Social Security program has once again stayed the same. If you are a W-2 employee, you are going to be paying 7.65% of your wages back into the Social Security system so that one day when you get benefits, and for the people already on benefits, that is how we maintain current Social Security benefits up to something like 73% or 75%. We have done an episode on that. Where it can really sting with these payroll taxes is if you are self-employed. You don't have an employer covering the other half. You have to cover both sides of the Social Security payroll tax at 15.3%. These numbers have been the same as long as I have been here, and I would anticipate them continuing to stay the same. If there was a big massive change in Social Security in the future to keep this thing rolling, it might happen with these payroll numbers. The second one is for people still working, so not yet retirees, but pre-retirees like Adam and I. You pay that Social Security payroll tax up to a limit, which is $192,300 in 2027. This year it is $184,500, and after that amount, you do not have to pay the Social Security payroll tax. That number continues to go up, and for the self-employed person, you are paying taxes on both sides of that amount. I think that is a big number. Just a few more. Maybe we will do another episode about the earnings limit. For a lot of you, that may not be a huge deal, but I thought this was an interesting number. The maximum Social Security benefit. I would bet some of our listeners have had highly compensated years for a lot of years, and probably some of you are very close to a maximum Social Security benefit. A lot of people are curious about how close they are to the maximum. In 2027, if you are turning full retirement age, which is probably getting close to 67, it will be $4,188 per month. That is up only $36 from last year's $4,152. That is a little over $48,000 that a maximum Social Security person would earn. After that, we have a couple of other numbers that people are usually curious about. What is the average Social Security benefit of all people on Social Security? That number is $2,170. If you are looking at your Social Security statement and yours is higher than that, that is how you know you are higher than the average person. The average couple is going to be receiving $3,355 per month, and the average widow or widower is receiving about $2,000 per month from Social Security. Again, probably the biggest issue here, I told Adam before we started this podcast, is that in one sense, for a lot of $2 million to $8 million retirees, I do not want to fabricate that this is a bigger deal than it really is. I am sure for a lot of you, you appreciate the extra money. On the other hand, it is probably not going to change your retirement that much by getting a 3.6% inflation adjustment this year. I do think over the course of a retirement, you will be really thankful for a 3.6% cost of living adjustment.
Adam: Something interesting you mentioned earlier was the percentage of FICA tax that hasn't changed. But I do know since 2018, how much of your income that is being taxed has been affected. Maybe you can touch on how that impacts those who are still working and headed towards retirement, and what that means for them.
Garrett: Ultimately, I think if there was a pain point on this for people in this area, it is that they are doing the best they can. They are successful at their jobs, working hard, and making money. I am not sure how many of you pay attention to that upper limit of when you have to stop paying Social Security tax, but that bar has continued to escalate. What did you say it was?
Adam: I think it was $128,400 in 2018, and now it is up to $192,300.
Garrett: Yes. It kind of goes back to when I first started, seeing some of these numbers and thinking that is a high number. It keeps going up and up, and the people most impacted by that wage limit going up will be self-employed people. If you take 13% of that difference, that is a lot of extra taxes you are having to pay. I could see where that segment gets tired of being the one expected to fund deficits run at a federal level. If you are making $192,000 this year, maybe that is not the biggest deal in the world, but it is just another tax that you are feeling the brunt of that can impact your retirement.
Adam: It is interesting. I was at a conference recently, and they were talking about inflation. It is maybe not going to be astronomical over the coming years, but it is expected there will be a longer sustained inflationary period given some of the different things they are seeing in the economy. We have seen that over the past few years as well. I think 2022 was a 5.9% COLA, 2023 was 8.7%, 3.2% for 2024, 2.5% for 2025, 2.8% this year, and now 3.6% for next year. I know it feels like small potatoes for a lot of people, but when you start compounding some of these benefits over a long time, that is a pretty substantial portion of people's income. When I run retirement plans, the interesting thing is it relieves some of the pressure on people's portfolios because their fixed income stays the same, but groceries and subscriptions like Netflix are going up. Explain the impact for people in this $2 million to $8 million space. Why is it nice to have that COLA adjustment when that is almost a 30% increase over the past six years?
Garrett: I have a hot take for you here, Adam. I think for your average American, it is a huge deal to get that cost of living adjustment every year. I would say for $2 million to $8 million retirees, if you can imagine an average American, Social Security makes up half of their retirement income. That means half of their retirement income is inflation-adjusted. When we look at a $2 million to $8 million retiree, there is a wide spectrum of living expenses. High assets don't always mean high income or high expenses, which is why we give that range. Let's say somebody has a $250,000 a year retirement expense level, and Social Security benefits are coming in at $70,000 a year. That $70,000 compared to the $250,000 net need is a smaller portion. Cost of living adjustments like this do help, but for higher net worth people, it puts more pressure on your portfolio to make up for that inflation adjustment. I do think for higher net worth people with higher income and higher expenses, your portfolio has to work harder to maintain that inflation-adjusted level of spending.
Adam: Any other things that should just be on people's minds as they are thinking of planning for their Social Security needs? Maybe one final thought for people that are already on Social Security, and one thought for people that haven't filed yet, thinking through when they should file and what that looks like?
Garrett: Let's start with the people that are not yet retired. I do not want to go too deep down this rabbit hole because it gets confusing. There is a whole way that Social Security calculates your benefits that is a little bit like means testing. My understanding is that once you turn age 62, you are going to get the full credit of a cost of living adjustment. So whether you have filed or not and you are age 62, this 3.6% will be credited to you so you will receive the full benefit of that. However, if you are younger than age 62, there is a process using a formula called the Average Indexed Monthly Earnings, AIME, and the AIME uses bend points. The bend points are structured in a way that people with lower compensation throughout their working lives receive a higher replacement rate for Social Security benefits in retirement. If somebody makes $30,000 per year, they are going to get a large portion of that back in Social Security once they retire. But for people on the opposite side of that third bend point, you start getting a very small return on the money you are actually paying in, something like 15%. I think for people getting ready to go into retirement and thinking about Social Security, one tip I would give is that if you are married, it makes a big difference to strategize together. My general rule of thumb is that if you are married, and let's take a traditional scenario where a husband is older than a wife. If those ages are close, or if the older spouse has a higher benefit, because women typically live longer, it can make sense to prioritize one of the spouses making it to age 70. If the older person has the higher benefit, that can be a really compelling thing for a retiree between two and eight million. I would try to strategize by having an RMD plan and a Social Security income plan woven together before you retire. For those people that are already retired, maybe I can use an example from a meeting I was in recently. In their situation, they were close to a Medicare IRMAA threshold, within $5,000 or $6,000 this year. We just did an episode on not being too scared of Medicare IRMAA, as sometimes it makes sense to go right through it. But I just came out of a meeting today where they were $5,000 or $6,000 away from Medicare IRMAA. It is October 29th, they didn't need any more money, and they had plenty of cash in the bank. We did not need to generate additional capital gains or an extra level of Medicare IRMAA charges. We are just being cognizant of it, watching it, and being careful. It is not that we are avoiding IRMAA like the plague, but it just seems like the smart, prudent thing in this situation. If you are on Social Security benefits already and you get a 3.6% cost of living adjustment next year, it just raises the floor of your income. Medicare IRMAA should also go up with inflation, but I think that is something on an annual basis that you want to watch. Be cognizant of the different tax brackets and IRMAA thresholds with that additional forced income.
Adam: I think that is an important reminder to be doing income projections each year. Especially this time of year, it is a great time to be looking and seeing if you need more income, where the IRMAA thresholds are, and where the marginal tax brackets sit. Also being proactive for next year, taking that tax return you have and doing the COLA adjustment on your Social Security. Right now you have the COLA adjustment, so you already have that base floor. Your annuities are probably fixed, and you know your RMD numbers if you are at RMD age. You can already start building some projections for next year to do some planning. I would encourage everybody to go ahead and do that for this year, but also look towards next year because you can make some of those adjustments now pretty easily and quickly. I always encourage people to go to the website and check out our year-end tax planning checklist. You put your email in, get that sent to you, and you also get a weekly newsletter with great tips, tricks, and case studies on what different people are doing. I think as you mentioned, we have done some episodes on Social Security and on some of these IRMAA thresholds, so we will link some of those down below, along with the Social Security fact sheet. Any closing thoughts or other things you think people need to know before tuning out of this one and heading to the next episode?
Garrett: I think for retirees in this $2 million to $8 million space, Social Security probably is not your largest asset. But I tell people in this range all the time, it is probably one of your best assets. The reason is that every single year, like clockwork, when inflation goes up, your benefit goes up too. I remember starting in 2013 and talking to a room of retirees. COLA adjustments were 1.5% my first year, then 1.7%, then 0%, then 0.3%, and finally 2% in 2017. In those years, people did not really care about inflation. But I bet you all of our listeners have seen gas prices go up. I saw diesel the other day in Knoxville was like $6 compared to unleaded gas.
Adam: Leave your diesel trucks at home right now.
Garrett: You go to the grocery store, everything is getting expensive. I had to do a home project the other day, and I thought they were either going to quote me $1,000 or $20,000. I had no idea. We are just living in a volatile inflationary time. I remember when 2020 hit and groceries went up, I thought they better not grow anymore for the next decade. The funny thing with inflation is it keeps hammering away year after year. I do not think we are through this. Maybe nothing like the past few years, but I think it is going to stick around. Social Security may not be your biggest asset in the $2 million to $8 million space, but it is one of your best.
Adam: Absolutely. I feel like I have been telling as many people as I can because everybody sees the headlines that we are heading towards insolvency and Social Security is going to disappear. We have mentioned it in other episodes, but it is worth repeating. Depending on the projections, somewhere between 70% and 80% of Social Security is funded year to year through these payroll taxes. A large portion of Social Security is safe and being funded annually. It is the trust fund they have built to cover the other 20% to 30% that is up in the air right now, and at some point, somebody is going to have to do something about it. We will see what happens, and as we get more information, we will communicate that. I think that will be a big deal over the next three to five years with Congress and presidential elections. It is worth reminding people that if you are already in retirement or right there about to pull the trigger, you are probably not too worried about Social Security disappearing. It may be adjusted or changed some. The younger you are, maybe you have to worry more about having more retirement assets than peers that are already collecting or about to collect. Those are some of our thoughts on Social Security. Hop down in the comments. I know it is a complex topic. Feel free to throw some questions down there.
Garrett: I was going to say, Adam would love to field all of your Social Security concerns about how the program is run. If you want to email him after the podcast, he would be glad to look, read, and answer every single one.
Adam: Just blow me up if you need help picking a political candidate or any of that. No, please go make those decisions for yourself. I am happy to do some of the financial planning and projections, but I am going to go hide my email online and scrub the internet. We appreciate you guys tuning in. We always try to add value to what you guys are doing. Check us out on YouTube, Apple Podcasts, and Spotify. Like, subscribe, and follow, and keep hanging out with us. We enjoy building a community, especially through the website and the newsletter, so check that out as well. My name is Adam Reed. This is Garrett Crawford. We're Retirement Tax Matters.