This 2027 Social Security Rule Change Is a Small Victory for Some Working Beneficiaries

In 2027, Social Security recipients are set to receive a 3.6% cost-of-living adjustment (COLA), adding roughly $75 to the average monthly benefit. This additional income is a small victory for those who have been grappling with rising expenses, though it may also raise concerns for working beneficiaries who could potentially lose some of their checks due to the earnings test. Fortunately, the earnings test limits are also increasing in 2027, which could provide these seniors with some breathing room in their budgets.

If you are employed and claiming Social Security benefits before reaching your full retirement age (FRA), your benefits may be withheld if your earnings exceed certain thresholds. In 2026, you would lose $1 for every $2 earned over $24,480 if you remained under your FRA for the entire year. Once you reach your FRA in 2026, this amount drops to $1 for every $3 earned over $65,160, but only if you earn this amount before your birth month.

For high earners, these thresholds may be low enough that they could forfeit entire months of benefits. However, once you attain your FRA, the government provides a one-time benefit boost to compensate for the earnings test deductions. This can alleviate some of the short-term disadvantages, particularly for those who were counting on their checks to cover a significant portion of their expenses.

The good news is that in 2027, the earnings test limits will be raised to $25,560 for those who are under their FRA for the entire year and $67,920 for those who will reach their FRA next year. While this may not entirely eliminate the potential losses due to the earnings test, it will allow individuals to go longer before they encounter this issue.

If you anticipate difficulties with the earnings test, it is advisable to plan ahead and prepare for this possibility by relying more on personal savings or income from your job during the months when your benefits are reduced or eliminated.

Furthermore, those who will reach their FRA in 2027 should be prepared for a substantial benefit increase once the earnings test no longer applies to them. To understand how this increase may impact your future checks, it is recommended to contact the Social Security Administration. You may need to adjust your budget accordingly to accommodate these changes. For further assistance with investments and financial planning, consider exploring The Motley Fool's premium services.