The COLA Headlines and the Number That Actually Matters
Last month a widely followed forecast said next year's Social Security raise would be 4.7 percent. This month the same forecaster says 3.7. That is a full point of somebody's grocery budget appearing and disappearing in thirty days, and the phone calls that come with it are all some version of the same question: should we be changing anything? So this week we talk about what a COLA forecast is actually worth, and about the quieter Medicare math that deserves the attention the headlines are getting.
WHAT THE FORECASTS SAY
Two groups publish the estimates you see in the news. One now projects a 3.7 percent raise for 2027, down from 4.7 just last month after June inflation came in soft and energy prices had their biggest drop in six years. The other is holding at 3.8. Here is the thing about both numbers: neither one exists yet. The real COLA is set by inflation readings from July, August, and September, and the official announcement comes in October.
WHY WE DON'T PLAN ON THEM
When a client calls about this, my answer starts the same way. There are no plans to make changes. A projection that moves a full point in a month is not something you steer a retirement by. What we can steer is spending, which is why we track it in the first place, and a plan built on what you actually spend does not wobble every time a forecast does. Social Security is one piece of the puzzle. When the official number comes out in October, we will put it in the plan. Until then it is weather.
THE PART WORTH PLANNING FOR
The quieter story is on the Medicare side. The trustees project the 2027 Part B premium lands somewhere north of $210 a month, and the surcharge brackets called IRMAA are already being sketched out. IRMAA is the piece that catches people, because it runs on a two year delay. Your 2025 tax return sets your 2027 premium. Income you create this year, say a Roth conversion this fall, shows up in your 2028 premium. And the brackets are cliffs, not slopes. One dollar over a line and both spouses pay the full surcharge for that year.
None of that makes conversions a mistake. It makes them a decision with one more line item. Near the end of the year we run the tax projections and look at different conversion amounts side by side, the tax impact and the penalty impact together, before anything gets decided. The truth is that a well sized conversion is controlling what we can control. You are paying tax at rates you can see today, and that is an opportunity, for your own lifetime tax bill and for the people who inherit the accounts after you.
THE WHOLE IDEA
The October headline requires nothing from you. The two year lookback rewards a little homework. Those are opposite kinds of news, and most coverage treats them the same.
Two Ohio Notes
Lawmakers passed a $350 million package giving homestead exemption recipients a one time property tax credit of roughly $500, starting in January. It is income restricted, so most readers of this brief will not qualify, but a parent or neighbor on a fixed income might, and it is worth making sure they are enrolled in the homestead exemption at all. And for the teachers: STRS approved a 1.6 percent cost of living increase for the fiscal year that started July 1.
Spending On Purpose
One more thing, because the COLA conversation is really a spending conversation underneath. I work with a family that has around nine million dollars and no debt. They spend about $180,000 a year, which is a 2 percent withdrawal rate before Social Security even enters the picture. By any math they could do more. They are lifelong savers, and big gifts to the kids never sat right with them because they worry about spoiling people they love. What finally landed was memories. We stopped talking about transferring money and started talking about building experiences, and now there are more family vacations on the calendar than there used to be. Sometimes the projections are the permission slip. The money was always for something.
STILL WORKING? FILE THIS AWAY
If you are 50 or older, earned more than about $150,000 last year, and make catch-up contributions to your 401(k), those contributions now go in as Roth whether you asked or not. Your paycheck shrinks a little because the tax comes out now instead of later. The account did not get worse. It just costs more at the register, and tax free growth with no required withdrawals is still a very good thing to own more of.
WORTH A READ
CNBC: 2027 COLA estimate falls as inflation cools
Kiplinger: projected 2027 IRMAA brackets
Statehouse News Bureau: Ohio's one time property tax credit
STRS Ohio: 1.6% COLA approved for fiscal year 2027
If you are wondering what a conversion would do to your Medicare premium, or you just want a second set of eyes on the year end math, grab 30 minutes on my calendar and we will walk through it together. No agenda. You can read more about how I work at JCS Retirement Tax Advisors.
This newsletter is for education only and is not tax, legal, or investment advice for your situation.