Social Security Changes Expected in 2027

Social Security’s announced 3.6% cost-of-living adjustment for 2027 will raise monthly benefits, but retirees and advocates say it may not keep pace with rising expenses. The increase could also push some beneficiaries into owing federal taxes on a larger share of their benefits, since the income thresholds used for that calculation are not adjusted for inflation; tax planning strategies include managing withdrawals and considering Roth savings. Separately, the maximum earnings subject to Social Security payroll taxes will rise from $184,500 to $192,300, increasing the maximum tax for high earners while also affecting the earnings used to calculate future benefits. Retirees with income near the benefit-tax thresholds may face a “tax torpedo,” in which additional income makes more of their Social Security benefits taxable, though strategies such as withdrawal sequencing and Roth conversions may help limit the impact. A broader debate over the program’s funding shortfall includes a proposal to raise the payroll tax rate, which a Cato Institute economist says could cost a median worker and employer thousands of dollars more annually.