If You're a Retiree, Here's How Your 2027 Budget Will Look Different After a Big Social Security COLA

Dana George, The Motley Fool

Sun, September 20, 2026 at 2:52 PM GMT+3 4 min read

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Several key financial factors are likely to affect your 2027 budget. Knowing what to expect can help you better anticipate both your income and your out-of-pocket expenses moving into the new year.

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Income

The most straightforward way to budget for the upcoming year is to begin with how much money you expect to bring in.

Social Security

When calculating a cost-of-living adjustment (COLA), the Social Security Administration (SSA) uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Specifically, the SSA finds the average CPI-W score for the third quarter of the current year. That means the average CPI-W score for July, August, and September of 2026 will determine how much your monthly Social Security benefits increase -- regardless of whether inflation heats up or cools down during the fourth quarter.

Although the precise COLA increase won't be announced until Oct. 14, estimates range from 3.4% (from the Committee for a Responsible Federal Budget) to 3.6% (from AARP). Splitting the difference to 3.5%, the average monthly Social Security retirement benefit of $2,071 would increase by $72 to $2,143.

To estimate how much your gross monthly benefit might increase, multiply your current benefit by 3.5% and subtract ordinary deductions, such as Medicare premiums and taxes.

Retirement accounts

If you make regular withdrawals from retirement savings to pay monthly expenses, don't forget to add them to your expected income. If you have a retirement account but haven't begun withdrawing from it yet, make sure you understand whether and when you're required to begin taking required minimum distributions (RMDs). RMDs apply to you if you have any of the following account types:

Traditional individual retirement account (IRA)
SEP-IRA (Simplified Employee Pension)
SIMPLE IRA (Savings Incentive Match Plan for Employees)
401(k) plan
403(b) plan
457(b) plan
Profit-sharing plan
Pension plan
Inherited IRA

If you're not yet aware, recent legislation raised the RMD starting age to 73 for those born between 1951 and 1959 and to 75 for those born in 1960 or later. As you create your 2027 budget, factor in your RMD deadlines, as failing to withdraw a full RMD can lead to costly penalties. The standard penalty for failing to withdraw the required amount is 25%, which may be reduced to 10% if you correct the mistake within two years.

Typically, the deadline for RMD withdrawals is Dec. 31. However, that deadline is extended the first year you're required to make an RMD withdrawal to the following April 1.

Expenses

Once you've estimated how much money you'll have available to you each month, it's time to determine how much you'll need to spend. As you list your monthly expenses, don't forget to factor in Medicare and inflation.

Medicare

Medicare expenses tend to rise each year. Here are cost projections for 2027:

Data source: Centers for Medicare & Medicaid Services. Note: Projections are subject to change when official 2027 figures are released.

Inflation

While inflation may cool next year, the Federal Reserve's June 2026 Summary of Economic Projections predicts that its favored inflation measure will be around 2.3%.

Naturally, no one can know for sure how much of your COLA increase will go toward covering inflationary expenses. Still, it's good to factor some in as you budget to ensure it doesn't catch you (and your bank account) by surprise.

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If You're a Retiree, Here's How Your 2027 Budget Will Look Different After a Big Social Security COLA was originally published by The Motley Fool