Social Security recipients will receive a 3.6% cost-of-living adjustment (COLA) in 2027, raising monthly benefits for millions of retirees starting in January. The Social Security Administration estimates that retired workers will receive an average increase of about $75 per month. While the adjustment can provide some financial breathing room, it’s worth thinking carefully about how to use the extra money. A larger Social Security check doesn’t necessarily mean retirees will have significantly more money available for shopping, travel, or entertainment. Healthcare costs, housing expenses, groceries, and other necessities can absorb much of the increase. Before making plans for the additional income, here are five things retirees should understand.
Your Actual Increase May Be Different From the Average
The announced 3.6% COLA applies to eligible Social Security benefits, but the dollar increase will depend on your current benefit amount. The estimated $75 monthly increase is an average, not a guaranteed payment for every retiree. For example, someone receiving $1,500 per month would see an estimated $54 increase before any applicable deductions. Someone receiving $2,500 would see an estimated $90 increase. Your individual adjustment will depend on your benefit amount and other factors affecting your payment.
Check your personalized COLA notice rather than relying on general estimates. The Social Security Administration plans to make notices available through my Social Security account in late November 2026, with mailed notices following in December.
Medicare Premiums and Other Deductions Can Reduce the Increase
If you’re enrolled in Medicare, remember that your Social Security payment may be reduced by Medicare premiums and other deductions. This means the amount deposited into your bank account may not increase by the full COLA amount. Medicare Part B premiums are particularly important to watch because they can change from year to year. Some beneficiaries also pay additional amounts based on their income, while others may have supplemental insurance premiums or other deductions taken from their benefits. Before deciding how much extra money you can spend, compare your current net Social Security payment with your expected 2027 payment. Look at the amount you actually receive after deductions, not just the percentage announced by the Social Security Administration.
The COLA May Not Match Your Personal Cost Increases
The purpose of a COLA is to help Social Security benefits keep pace with inflation. However, the adjustment is based on a specific measure of consumer prices called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). It may not reflect the spending patterns of every retiree. For example, older adults who spend a significant portion of their income on healthcare, prescription medications, housing, or home assistance may experience cost increases that differ from those reflected in the index used to calculate the adjustment. This is why a 3.6% benefit increase doesn’t necessarily mean your purchasing power will improve by 3.6%. Review your own expenses to see which categories are putting the most pressure on your budget. Your personal cost increases may be higher or lower than the COLA percentage.
Consider Using the Extra Money for Essential Expenses First
It may be tempting to use a higher Social Security payment for holiday shopping, dining out, or other purchases. There’s nothing wrong with enjoying some of the extra income, but retirees may want to prioritize essential expenses first. Consider whether your grocery budget, utility bills, insurance premiums, or prescription costs have increased. If you have been struggling to keep up with these expenses, directing some of the additional income toward them could make your monthly budget more manageable.
You could also use part of the increase to catch up on overdue bills or reduce high-interest credit card debt. Paying down debt can help limit future interest charges and free up more money over time. Once essential expenses and financial obligations are covered, you can decide whether there’s room for discretionary spending.
Don’t Commit the Entire Increase Before It Arrives
Even if you already have plans for your higher Social Security payment, give yourself time to review the actual amount before adding new recurring expenses. A new subscription, installment payment, or other monthly commitment can become difficult to manage if your budget changes. Instead, consider treating the increase as an opportunity to strengthen your financial cushion. You might put some money toward emergency savings, set aside funds for upcoming home repairs, or prepare for healthcare expenses that aren’t fully covered by insurance. It’s also a good idea to watch for scams surrounding the annual COLA announcement. You don’t need to pay anyone to receive your increase or provide sensitive information in response to an unsolicited call or message. Use your official my Social Security account or contact the Social Security Administration directly if you have questions about your benefit.
*This article was developed with AI-powered tools and has been carefully reviewed by our editors.
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