Social Security beneficiaries receive an annual increase to their benefits through the Cost of Living Adjustment, or COLA, and early forecasts suggest the 2027 boost could be higher than this year’s as inflation picks up again.
More than 70 million people across the U.S. collect some form of Social Security benefit, whether that be retirement, survivor or disability benefits. It is the nation’s largest social safety net program, and pays out billions of dollars every year.
While the official adjustment will not be announced until October, analysts are already raising their projections following recent increases in gasoline, energy and grocery prices.
What Are The Latest COLA Estimates?
The Senior Citizens League (TSCL) estimates the 2027 COLA could reach 3.9 percent, while independent Social Security analyst Mary Johnson has projected a 4.2 percent increase.
Both estimates are above this year’s 2.8 percent adjustment.
Why Estimates Are Rising
Inflation readings have accelerated in recent months after starting the year at lower levels. CPI-W inflation, the measure used to calculate Social Security COLAs, came in at 2.2 percent in January and February before rising to 3.3 percent in March as energy prices surged amid the Iran conflict.
The Bureau of Labor Statistics reported this week that annual inflation reached 3.8 percent in April, the highest level since inflation reached 4 percent three years ago.
Much of April’s increase was driven by higher energy and fuel costs, while housing and food prices also contributed to the jump.
The ongoing conflict involving the U.S., Israel, and Iran, resulting in the effective closure of the Strait of Hormuz shipping route, has fueled higher oil prices globally, which in turn has raised gasoline costs across the United States.
Because fuel and electricity carry significant weight within the CPI-W index, even relatively short-term spikes in energy prices can quickly alter expectations for the next COLA. Fuel prices were up 54.3 percent year over year, while electricity prices rose 6.1 percent.
How COLA Is Calculated
Social Security’s annual COLA is determined using the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as CPI-W. The CPI-W has increased 3.9 percent over the past 12 months.
The Social Security Administration compares the average CPI-W reading from July, August and September with the same three-month average from the previous year. If prices rise, benefits increase by the same percentage, rounded to the nearest tenth of a percent.
Because the official calculation depends on third-quarter inflation data that has not yet arrived, analysts revise their forecasts throughout the year as new monthly inflation reports are released. Early projections can shift sharply because only a small amount of data is available at the start of the year.
The official COLA announcement is made each October.
What a Higher COLA Could Mean
Using the average retired worker benefit of $2,024.77 per month, a 3.9 percent COLA would increase monthly payments by about $78.96, while a 4.2 percent adjustment would amount to roughly $85.04 more each month.
For many older Americans, those increases are significant because Social Security remains a major source of income. According to AARP, about 40 percent of Americans age 65 and older rely on Social Security for at least half of their income, while around 14 percent depend on it for 90 percent or more.
Still, a larger COLA does not necessarily mean retirees are financially ahead. Higher adjustments are intended to help beneficiaries keep pace with inflation, not increase their purchasing power. In 2023, the COLA was 8.7 percent, due to runaway inflation caused by the coronavirus pandemic. While retirees and other Social Security beneficiaries took home more benefits, much of this was absorbed by elevated costs.
TSCL Executive Director Shannon Benton said many retirees are continuing to struggle, despite the prospect of a higher adjustment.
“Many seniors are telling us the same thing: as inflation picks back up, life still does not feel affordable. The average senior already lives on much less than younger Americans, according to the Census Bureau, and our supporters constantly tell us they feel like they’re falling farther and farther behind.”
Benton said older Americans are particularly affected by rising costs in essential areas such as healthcare, housing, utilities and insurance.
“For retirees living on fixed incomes, the costs that matter most, especially healthcare, housing, utilities, and insurance, continue to rise faster than prices in the rest of the economy, silently wrenching seniors dry,” she said. “This makes the national affordability conversation even more important than ever.”
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