Social Security's 2027 COLA Was Just Announced, but There Are 2 Other Key Changes to Be Aware of -- Even if You're Not Currently Receiving Benefits

Millions of Americans look forward to the annual Social Security cost-of-living adjustment (COLA) because it directly affects their retirement income. Many Social Security recipients rely on benefits for all or most of their retirement income, so this increase could make a noticeable difference in their budget.

On Oct. 14, the Social Security Administration (SSA) announced that Social Security recipients would receive a 3.6% benefits increase in 2027, one of the highest in the past few decades.

While the COLA has rightfully gotten a lot of attention, two other changes to the program are worth noting. Even if you're not currently receiving benefits, keep these changes on your radar because they could affect you or any potential claiming decision. Let's take a look at them.

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More income is subject to the Social Security payroll tax

Social Security is mainly funded through payroll taxes. The current tax rate is 12.4%, with employers and employees both paying 6.2%. If you're self-employed, you're responsible for the full 12.4%.

Not all income is subject to Social Security payroll taxes; it's only up to a certain amount, called the "wage base limit." This year, the wage base limit is $184,500, but beginning in 2027, it will increase by $7,800 to $192,300.

So, next year, any dollar earned above $192,300 is exempt from the Social Security tax. If someone earns $200,000, for example, $7,700 would be exempt. Admittedly, the number of U.S. workers earning above $192,300 is small, but this change is notable for high earners because it could increase their tax bill.

Early claimers have a new earnings threshold

Your full retirement age (FRA) is when you're eligible to receive your full baseline monthly benefit, but you can claim Social Security as early as 62. However, if you claim benefits early and keep working, you'll need to monitor your earnings, or you could be subject to Social Security's retirement earnings test (RET).

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If you won't reach your FRA in 2027, the earnings limit is $25,560, up from $24,480 this year. Earning above that will reduce your annual benefits by $1 for every $2 you earn over it. For example, if you were to earn $4,000 over, your annual benefit would be reduced by $2,000.

If you reach your FRA in 2027, the limit is $67,920, up from $65,160 this year. Earning above that will reduce your benefits by $1 for every $3 over that amount. For instance, going over the limit by $6,000 would also reduce your annual benefit by $2,000.

In situations where someone retires mid-year and has months' worth of income that could push them over the threshold, Social Security uses a monthly limit rather than an annual one. The monthly limit is $2,130 if you're under your FRA and $5,660 if you'll hit your FRA this year.

Luckily, you don't permanently lose reduced benefits. The SSA essentially withholds them until you reach FRA, then recalculates your monthly benefit and gradually adds them back over time.

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