Social Security’s annual cost-of-living adjustment (COLA) raises monthly benefits, but most Medicare Part B enrollees have their premiums deducted from that same payment. When premiums rise, they absorb part of the increase, leaving less extra money than the COLA percentage suggests. Knowing how the deduction, hold-harmless protections and income-related surcharges work can help you estimate your actual raise. The examples below show how the impact differs across benefit levels.
A financial advisor can help you build a retirement plan that includes multiple options for how and when you claim Social Security.
How Medicare Part B Premiums Affect Your COLA
Social Security calculates the COLA using the third-quarter average of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), comparing it with the third quarter of the last year a COLA took effect. SSA typically announces the adjustment in October, with higher Social Security payments beginning in January.
CMS separately announces the following year’s standard Part B premium, usually in the fall. Most beneficiaries have that premium automatically deducted from their Social Security payment, so their deposit reflects both changes.
SSA has announced a 3.6% COLA for 2027, but a final CMS announcement confirming the 2027 Part B premium has not been made available. Therefore, these examples use 2026, the latest year with both figures confirmed. 1
Two formulas help isolate the effect of Part B:
Net monthly raise = (prior monthly gross benefit × COLA) − monthly Part B premium increase
Share of raise lost = Part B premium increase ÷ gross monthly raise
Multiply the second result by 100 to express it as a percentage. These formulas assume other deductions remain unchanged and no hold-harmless adjustment applies.
Examples at Different Benefit Levels
For 2026, the 2.8% COLA increased benefits while the standard monthly Part B premium rose $17.90. 2 The hypothetical examples below use monthly benefits before the COLA and before Medicare deductions; actual payments can differ slightly because of SSA rounding.
| Monthly benefit | Gross raise calculation | Premium increase | Net monthly raise | Share of raise lost |
|---|---|---|---|---|
| $1,200 | $1,200 × 2.8% = $33.60 | $17.90 | $33.60 − $17.90 = $15.70 | $17.90 ÷ $33.60 = 53.3% |
| $2,000 | $2,000 × 2.8% = $56.00 | $17.90 | $56.00 − $17.90 = $38.10 | $17.90 ÷ $56.00 = 32.0% |
| $3,000 | $3,000 × 2.8% = $84.00 | $17.90 | $84.00 − $17.90 = $66.10 | $17.90 ÷ $84.00 = 21.3% |
Because the standard premium increase is a flat dollar amount, it consumes a larger percentage of smaller raises. Someone receiving $1,200 loses more than half the COLA increase to Part B, while someone receiving $3,000 loses about one-fifth.
The benefit level at which exactly half the raise goes toward the premium increase is $17.90 ÷ (2.8% × 50%), which equals approximately $1,278.57 monthly. Below that amount, the premium increase absorbs more than half the gross raise, before any applicable protection.
How the Hold-Harmless Rule Protects Some Beneficiaries
The hold-harmless provision generally prevents an increase in Part B premiums from reducing an eligible beneficiary’s net Social Security payment below its previous level. Instead, the beneficiary’s Part B premium is limited to what the benefit increase can cover.
Eligibility generally requires entitlement to Social Security for November and December, with December and January Part B premiums deducted from the corresponding benefit payments. People paying income-related surcharges and those whose premiums are paid by Medicaid are excluded. 3
| Beneficiary group | Hold-harmless applies? | Reason |
|---|---|---|
| Continuing beneficiary meeting deduction requirements | Generally yes | Meets benefit and premium-withholding conditions |
| New Part B enrollee without qualifying prior deductions | Generally no | Lacks the required deduction history |
| Beneficiary paying IRMAA | No | Income-related premiums are excluded |
| Beneficiary whose premium Medicaid pays | No | State pays the premium |
| Person paying Medicare directly without Social Security withholding | Generally no | Does not meet withholding requirements |
Protection can preserve the payment without producing additional spending money. For example, if a hypothetical COLA adds $14 but Part B would rise $17.90, an eligible beneficiary’s increase may be entirely absorbed, leaving the net payment unchanged. Other deductions can still affect the deposit.
How IRMAA Can Take More Than the COLA
Higher-income beneficiaries pay an income-related monthly adjustment amount, or IRMAA, for Part B and Part D. SSA generally uses modified adjusted gross income, adjusted gross income plus tax-exempt interest, from two years earlier, meaning 2026 premiums generally reflect 2024 income. Hold-harmless protection does not apply.
| 2026 income tier: single filer MAGI | Married filing jointly MAGI | Total monthly Part B premium per person |
|---|---|---|
| $109,000 or less | $218,000 or less | $202.90 |
| Above $109,000 through $137,000 | Above $218,000 through $274,000 | $284.10 |
| Above $137,000 through $171,000 | Above $274,000 through $342,000 | $405.80 |
| Above $171,000 through $205,000 | Above $342,000 through $410,000 | $527.50 |
| Above $205,000 but below $500,000 | Above $410,000 but below $750,000 | $649.20 |
| $500,000 or more | $750,000 or more | $689.90 |
These CMS figures cover full Part B benefits; separate rules apply to married people filing separately. 4
Entering the first surcharge tier adds $81.20 monthly ($284.10 − $202.90), exceeding the $56 COLA on a $2,000 benefit. Someone moving from the 2025 standard premium to that 2026 tier would face a $99.10 increase ($284.10 − $185), leaving their payment $43.10 lower despite the COLA. Part D IRMAA could reduce it further.
How to Estimate and Plan for Your Net Raise
Find your gross benefit and Medicare deductions on your COLA notice, mailed in December unless you receive notices electronically, or through your My Social Security account. Apply the formula using your actual premium change, especially if you pay IRMAA.
Consider how taxable Roth conversions, large IRA withdrawals and realized capital gains could affect future IRMAA. Spreading income across years may help manage thresholds, but compare potential premium savings with the broader tax and investment consequences.
If retirement, a spouse’s death or another qualifying life-changing event substantially reduces income, request a new determination using Form SSA-44 and supporting documentation. A lower current income does not automatically update the determination based on an older return.
Finally, review Medicare Advantage and Part D changes during October 15–December 7 open enrollment. Premium changes can affect your deposit when withheld, or your household budget when billed separately, so calculate the full cost of coverage before spending the apparent raise.
Bottom Line
A Social Security COLA increases your gross benefit, but rising Medicare premiums can leave you with a much smaller increase in spendable income. Hold-harmless protection prevents certain Part B increases from shrinking eligible beneficiaries’ payments, while higher earners face additional costs through IRMAA. Reviewing your benefit notice, Medicare premiums, and income together with a financial advisor can help you budget around the amount you’ll actually receive.
Tips for Navigating Social Security
- A financial advisor can help you with Social Security and retirement income planning. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- COLAs are used to account for inflation, which can be a difficult concept to wrap your head around. But inflation is unavoidable, so you should have an idea of how it will affect your money. You can use SmartAsset’s inflation calculator to help track what your money will be worth in the future.
Photo credit: ©iStock.com/witsarut sakorn, ©iStock.com/designer491
Read the full article here
