Social Security's 2027 COLA Might Disappoint: Here's How Retirees Can Cope

Many seniors on Social Security were disappointed with this year's 2.8% cost-of-living adjustment (COLA). And it's natural to hope for a larger COLA in 2027.

But the 2027 COLA may end up disappointing Social Security recipients. Here's why, and what to do about it.

Image source: Getty Images.

The COLA may be smaller than initially expected

Earlier this year, COLA estimates were coming in at close to 5% following an uptick in inflation spurred by the conflict in the Middle East. But following July's Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which showed that inflation had recently cooled, prominent experts lowered their COLA forecasts.

The Senior Citizens League, an advocacy group, updated its COLA projection to 3.6%, down from 3.8% the previous month. And independent Social Security analyst Mary Johnson updated her COLA number to 3.4%, down from 3.7% just a month prior and 4.7% earlier in the year.

We don't have inflation data for August just yet. But if it shows a continued cooling, those COLA forecast numbers could nudge downward.

The COLA may not hold up no matter what

Even if next year's Social Security COLA comes in higher than expected, it might fail seniors because of a flaw in the way it's calculated. Simply put, the CPI-W does not specifically track the spending habits of retirees. Rather, its data covers households with wage earners whose spending tends to differ from seniors'.

This flawed formula has caused Social Security benefits to lose an estimated 13.7% of their buying power over the past 10 years, says the Senior Citizens League. And since the formula isn't changing for 2027, it's fair to assume that next year's COLA will have the same issues as previous ones.

How to make up for a COLA that doesn't do the job

If you're very reliant on Social Security for retirement income, you can't expect your 2027 COLA to improve your financial situation greatly -- even if it ends up coming in above the current estimates. So instead of banking on that raise to better your circumstances, take matters into your own hands.

Start by reducing small expenses like subscriptions you may not need. Then figure out if you're willing to shed larger costs in favor of smaller ones. Downsizing your home, for example, could free up a lot of money in your budget.

You can also look at your options for getting a part-time job. Thanks to the gig economy, you may be able to earn a nice amount of supplemental income without having to commit to a rigid schedule that doesn't work well for you.

No matter what the 2027 COLA amounts to, it may not be enough to help seniors keep up with rising costs and cover their essentials. It's best to prepare for that scenario and take steps to boost your income outside of that upcoming raise.

The Motley Fool has a disclosure policy.