Rooting for a Big 2027 Social Security COLA? Over 4% Means Hotter Inflation and a Bigger Tax Bill
A bigger Social Security raise sounds like a win, but chasing a 2027 COLA above 4% could quietly cost some retirees more than they gain. Here is what most seniors overlook before wishing for the largest possible check.
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If you’re itching to know how large Social Security’s upcoming cost-of-living adjustment (COLA) will be, you shouldn’t have to wait much longer. The Social Security Administration is scheduled to make an official COLA announcement on Oct. 14.
Meanwhile, current estimates are showing that next year’s COLA could end solidly in the mid-3% range. The nonpartisan Senior Citizens League is projecting a 3.6% COLA for 2027, while independent Social Security analyst Mary Johnson says the COLA could be 3.4% based on the most recent inflation data available.
But earlier in the year, experts were pointing to a Social Security COLA above 4%. And many seniors are no doubt hoping their 2027 raise will end up being that large.
A COLA over 4% has some serious drawbacks to be aware of, though. So you may not want to root for one after all.
The problem with a giant Social Security raise
Social Security COLAs are tied directly to inflation. So for the 2027 COLA to creep up above 4%, inflation will need to run hot this month. That’s not necessarily something Social Security recipients should want.
After all, if you get most or all of your retirement income from Social Security, you’re probably not having the easiest time keeping up with rising costs as it is. So the last thing you need is for inflation to pick up in September even more.
The other issue with a larger 2027 COLA is that it could push some people to owe taxes on their Social Security benefits. Whether those benefits are taxable at the federal level hinges on provisional income, which is calculated by taking the total of adjusted gross income, tax-exempt interest income, and 50% of annual Social Security benefits.
If next year’s COLA is huge, some people could be pushed right over the edge where their Social Security checks become taxable to some degree. That could easily negate the benefit of a larger raise.
And if you’re thinking “didn’t taxes on Social Security benefits go away?” you should know that they did not. As part of the One Big Beautiful Bill Act, a $6,000 senior tax deduction was introduced that effectively exempts the majority of Social Security recipients from paying taxes on their benefits today.
But that doesn’t mean those taxes don’t still exist. And in some cases, a decent boost to those monthly checks could spell the difference between having to pay taxes or not.
Plus, the $6,000 tax deduction has an expiration date. It’s only set to last through 2028.
If the 2027 COLA is huge, it raises seniors’ benefits at the baseline level. Then, even if the 2028 COLA is modest, a large raise in 2027 alone could drive more people to owe taxes on Social Security once the $6,000 deduction sunsets.
Be careful what you wish for
It’s natural to want a larger Social Security check each month than a smaller one. But a COLA that’s 4% or higher in 2027 could come with serious drawbacks.
It’s important to be aware of what those entail before you start hoping for a larger raise. And understanding the pitfalls above might help soften the blow if Social Security’s 2027 COLA only lands in the mid-3% range after all.
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Maurie Backman has more than a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. Her work has appeared on sites that include The Motley Fool, USA Today, U.S. News & World Report, and Kiplinger.
Prior to becoming a full-time financial writer, Maurie worked in the financial industry trading distressed debt. She then changed course and spent a few years designing electronic toys. After a stint in content marketing and UX, she shifted back into writing and has since covered everything from the housing market to estate planning to Medicare.
When she's not busy writing, Maurie can be found hiking, walking her dogs, driving her kids to their various sports practices and games, and curling up with a good book. She cooks on occasion and bakes way too often.
