The largest Social Security cost-of-living adjustment since 2023 brings higher benefits in January. Here’s what the increase means for your retirement income, Medicare premiums, and financial planning.
Published: October 14, 2026
By Eric Mullins, CFP®, CRPC® | Mullins Financial, LLC
I hear it constantly from Minnesota families: “It feels like everything costs more, and it’s hard to know whether our retirement income will truly keep up.” If that’s been on your mind, you’re not alone, and it’s exactly why the Social Security cost-of-living adjustment (COLA) matters.
The Social Security Administration has announced a 3.6% COLA for 2027, which increases monthly benefits for millions of Americans starting with benefits payable in January 2027.
For the average retired worker, that may look like roughly $75 more per month (about $900 per year). But the amount that actually lands in your checking account can be influenced by Medicare premiums, tax withholding, and other deductions.
For Minnesota public employees and retirees receiving benefits from PERA, TRA, or MSRS, the bigger planning opportunity is coordination - bringing Social Security together with pension income, retirement accounts, healthcare costs, and taxes so the pieces work as a system.
How Much Will Social Security Benefits Increase in 2027?
The 3.6% adjustment applies to your gross Social Security benefit. The Social Security Administration estimates the average monthly benefit for retired workers will increase from $2,095 to $2,170.
Here are simplified examples of what a 3.6% COLA could look like:
| Current Monthly Benefit | Estimated 2027 Benefit | Monthly Increase |
|---|---|---|
| $1,500 | $1,554 | $54 |
| $2,000 | $2,072 | $72 |
| $2,500 | $2,590 | $90 |
| $3,000 | $3,108 | $108 |
These are simplified examples before Medicare deductions, tax withholding, rounding, and any other adjustments. Actual benefits will vary.
The increase is automatic. If you’re already receiving Social Security, you do not need to apply.
Why Is Social Security Increasing?
Each year, Social Security benefits are adjusted based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The goal is to help benefits keep pace with inflation over time.
Recent COLAs include:
- 2025: 2.5%
- 2026: 2.8%
- 2027: 3.6%
A higher COLA can be welcome, but it also reflects something retirees feel in real life: higher prices. In other words, the COLA may help, but it doesn’t automatically mean you’ll have “extra” money - especially if your largest expenses (healthcare, housing, groceries, insurance) are rising quickly.
One practical way to think about COLA is this: it’s not just a number - it’s a planning input. When your income changes, it can ripple into taxes, Medicare premiums, withdrawal strategy, and even charitable giving plans.
Three Things Minnesota Retirees Should Review
1) Medicare Premiums Can Reduce Your Net Increase
If you’re enrolled in Medicare and your Part B premium is deducted from Social Security, your net deposit may rise by less than 3.6%.
There are two main reasons:
- Medicare Part B premiums can change year to year. If premiums rise, part of your Social Security increase may be absorbed.
- Income-related adjustments (IRMAA) may apply if your income (based on prior-year tax returns) crosses certain thresholds. IRMAA can increase Part B and Part D premiums for higher-income retirees.
Planning note: When your updated Social Security statement arrives (showing both your new benefit and deductions), focus on the net amount that will be deposited. That’s the number your monthly spending plan needs.
2) Coordinate Social Security With Your PERA, TRA, or MSRS Pension
For many Minnesota public service professionals, Social Security is one spoke in the wheel - not the entire wheel.
You may have retirement income from multiple sources, such as:
- PERA, TRA, or MSRS pension benefits
- Minnesota Deferred Compensation Plan (MNDCP) withdrawals
- 403(b), 401(k), or IRA distributions
- Brokerage accounts and savings
A key point: Social Security’s COLA does not automatically mean your pension benefit receives the same increase. Pension adjustments depend on your plan’s provisions.
This is where coordination becomes powerful. When one income stream changes (Social Security), you can revisit:
- Whether pension withholding should change
- Whether retirement account withdrawals should be adjusted
- Whether your “paycheck replacement” strategy still matches your spending needs
Real-world example: If your Social Security rises and your spending stays stable, you might be able to slightly reduce the amount you withdraw from a tax-deferred account early in the year. That could help manage taxable income - especially important for retirees who are balancing Medicare premium thresholds and tax brackets.
3) Review Your Retirement Tax Strategy (Federal and Minnesota)
Higher Social Security benefits can increase taxable income - sometimes in ways that surprise people.
At the federal level, Social Security taxation depends on “combined income” (also called provisional income), which generally includes:
- Adjusted gross income (AGI)
- Tax-exempt interest
- 50% of Social Security benefits
Depending on your combined income, up to 85% of Social Security benefits may be taxable at the federal level.
Minnesota has its own rules and income-based provisions related to Social Security taxation. The right approach depends on your full picture- pension, investment income, required minimum distributions (RMDs), and whether you’re doing charitable giving.
Planning ideas to discuss with your advisor and tax professional (depending on suitability):
- Adjusting tax withholding on Social Security or pension income
- Evaluating Roth conversion timing (especially in years before RMDs begin)
- Coordinating IRA withdrawals with years where you have unusually high or low income
- Considering qualified charitable distributions (QCDs) after age 70½ if charitable giving is part of your plan
None of these are “one-size-fits-all,” but they can be meaningful levers- especially for households with pensions.
If You’re Still Working: The 2027 Earnings Test Update
If you’re collecting Social Security while still working, the earnings test can temporarily reduce benefits before full retirement age.
For 2027:
- If you are under full retirement age for all of 2027, the annual earnings limit rises to $25,560.
- If you reach full retirement age during 2027, the higher earnings limit is $67,920 (applies to earnings before the month you reach full retirement age).
- Once you reach full retirement age, the earnings test no longer applies.
This can be especially relevant for Minnesota public employees who retire from public service, begin Social Security, and then step into part-time consulting, substitute teaching, or private-sector work.
A gentle reminder: The earnings test is often misunderstood as a permanent loss of benefits. In many cases, benefits are recalculated later to account for months when benefits were withheld. Your situation may differ—so it’s worth reviewing before you make big income decisions.
When Will You Know Your New Social Security Benefit?
The Social Security Administration expects updated COLA notices to be available online beginning in late November 2026 for most beneficiaries.
You can review your benefit information through your personal my Social Security account:
https://www.ssa.gov/myaccount/
Your notice generally shows:
- Updated gross benefit
- Medicare premium deductions (if applicable)
- Net benefit amount
Safety note: Be cautious of emails, texts, or calls claiming you must “verify” your COLA increase. The SSA does not contact beneficiaries to request sensitive information in that way. When in doubt, go directly to SSA.gov.
How to Use the COLA in Your Retirement Planning (Instead of Letting It “Disappear”)
A Social Security cost-of-living adjustment is a good opportunity to revisit your retirement spending plan. While the increase is designed to help keep pace with inflation, it's worth considering how the additional income fits into your overall financial picture.
Start by reviewing your current expenses.
Take a look at how your spending has changed over the past year. Healthcare, insurance, property taxes, groceries, and utilities may have increased, and some of these expenses may be rising faster than your Social Security benefit.
Consider how to use the increase.
Depending on your circumstances, the additional income might help you:
Offset higher everyday living expenses.
Set aside funds for healthcare or unexpected home repairs.
Reduce withdrawals from your IRA or other retirement savings.
Support travel, family activities, or other retirement goals.
Look beyond the coming year.
Social Security adjustments are determined annually, but your retirement plan should account for changing expenses and income needs over many years.
For Minnesota public employees receiving a PERA, TRA, or MSRS pension, it's especially important to consider how Social Security increases, pension adjustments, and retirement savings work together.
Planning note: Rather than looking at the COLA as additional spending money, consider how it can help maintain your purchasing power and support your long-term retirement goals.
Questions to Ask Before 2027 Begins
As you prepare for the new year, consider these questions to help determine whether your retirement income strategy needs any adjustments.
What will my actual Social Security increase be? After Medicare premiums and other deductions, how much more will I receive each month?
How does this increase coordinate with my pension? If I receive a PERA, TRA, or MSRS pension, how do the different cost-of-living adjustments affect my total retirement income?
Will the increase affect my taxes? Could higher Social Security benefits change my federal or Minnesota income tax liability, withholding needs, or Medicare premiums?
Should I adjust withdrawals from my retirement accounts? Could the additional income allow me to reduce withdrawals from my IRA, 403(b), or 457(b), or does my current strategy still make sense?
Does my retirement income still support my long-term goals? Am I accounting for inflation, healthcare expenses, major purchases, and potential changes in income for a surviving spouse?
The beginning of a new year is a natural time to revisit these questions. Small adjustments today can help keep your retirement income strategy aligned with your changing needs and priorities.
Bringing Your Retirement Income Together
At Mullins Financial, we believe solid retirement planning involves more than focusing on a single benefit increase. For Minnesota public employees, decisions about pensions, Social Security, investments, healthcare, and taxes are interconnected.
Our Public Service CLARITY Retirement Method™ is designed to help bring these pieces together into a coordinated plan - so you can make decisions with more confidence and less second-guessing.
If you’re approaching retirement (or already retired) and you’d like help understanding how the 2027 Social Security changes fit into your overall plan, we’re here to help.
Schedule a 20-Minute Retirement CLARITY Call
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Sources: Social Security Administration, 2027 Cost-of-Living AdjustmentFact Sheet and Cost-of-Living Adjustment Information, October 14, 2026.
This article is intended for general educational purposes and should not be considered individualized financial, tax, or legal advice. Individual circumstances and applicable rules may vary.