How Your 2027 Social Security COLA Could Lead to Higher Medicare Premiums

Social Security retirees are on track for a raise in 2027. In fact, the cost-of-living adjustment (COLA) seniors will receive will most likely be higher than the 2026 benefit increase.

This change to benefits could affect seniors in important ways. For some, unfortunately, it could mean higher Medicare premiums. Here's why.

Image source: Getty Images.

Will the 2027 COLA cause you to pay more for Medicare?

The Social Security COLA for 2027 is expected to be announced on Wednesday, Oct. 14. While the official numbers aren't available yet, the COLA is forecast to be around 3.5%.

Depending on your current monthly benefit amount, that 3.5% raise could lead to a fairly significant increase (this year's average Social Security payment of $1,997 per month would rise by $70, to roughly $2,067 next year). This big change is necessary to help seniors keep pace with inflation, which has been running hot since the COVID-19 pandemic.

Unfortunately, a higher income could potentially trigger an income-related Medicare premium surcharge called the income-related monthly adjustment amount, or IRMAA. That's because the taxable portion of your Social Security benefits becomes part of your Modified Adjusted Gross Income, which affects whether the IRMAA applies to you.

IRMAAs result in Medicare premiums that are higher than the standard. In 2026, for example, single filers with a modified adjusted gross income (MAGI) above $109,000 and up to $137,000 see an $81.20 monthly adjustment to their Medicare Part B premiums, while married joint filers with incomes above $218,000 and up to $274,000 see the same increase.

And the adjustments only get larger as your income increases.

So, with Social Security benefits rising and some seniors now on track for a higher 2027 income because of it, there's the potential that more people will have to pay these extra premiums.

When will your Medicare premiums be affected?

If your income was on the border of being subject to an IRMAA, and a Social Security increase causes your income to rise above the threshold where the adjustment affects you, you should be aware that the change will not impact you next year.

Medicare looks at your income from two years prior when determining if you are subject to IRMAA. So, a higher income in 2027 could result in higher monthly Medicare Part B premiums in 2029, depending on the IRMAA thresholds at the time.

You need to be aware of this and understand how a benefits bump could affect your future medical insurance costs, especially as IRMAA does not phase in gradually. If your income is at or below the threshold, you won't owe the extra premiums. If it is above it, you will.

Retirees should be aware of these rules as they do their retirement planning for the upcoming years. That's especially true because higher Social Security benefits that increase annual income could not only trigger an IRMAA, but also potentially result in you owing more tax on Social Security benefits in the future.

If your benefits go up but you face other extra costs because of it, you may need to rely more on distributions from your retirement plans.

Unfortunately, extra withdrawals may only serve to increase your MAGI further, which in turn can potentially trigger or increase your IRMAA, depending on how much extra money you withdraw and how your taxable income changes.

It's best to know this sooner rather than later so you're prepared for what your budget will look like in the coming years.

The Motley Fool has a disclosure policy.