Social Security's 2027 COLA: There's Bad News Already
Key Points
Initial estimates are calling for a smaller Social Security cost-of-living adjustment (COLA) in 2027 than in 2026.
COLAs are based on third quarter inflation, so it's too soon to predict next year's raise.
Social Security COLAs have a long history of falling short for retirees.
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When the Social Security Administration announced that benefits would be getting a 2.8% cost-of-living adjustment, or COLA, in 2026, seniors may have had a mixed reaction.
On the one hand, this year's Social Security raise is higher than last year's. On the other hand, a 2.8% boost isn't all that much to write home about, especially in light of this year's Medicare Part B hike.
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Meanwhile, the Senior Citizens League, an advocacy group, just released its first 2027 COLA prediction of the year. And the news, unfortunately, isn't great.
Next year's COLA may disappoint
Based on initial inflation data, the Senior Citizens League is projecting a 2.5% Social Security COLA for 2027. That's a notch below this year's COLA, and it's also considerably lower than some of the COLAs that came through in the years following the COVID-19 pandemic.
However, it's important to take that projection with a grain of salt. Social Security COLAs are based on third quarter inflation data. Since we're only in January, it's way too soon to know what next year's actual raise will amount to.
Groups like the Senior Citizens League like to make projections on a monthly basis so seniors on Social Security have a loose idea of what to expect. But these estimates can't be taken too seriously at this point of the year.
Don't expect much out of your 2027 COLA
No matter what next year's Social Security COLA amounts to, the sad reality is that it probably won't help seniors keep up with their costs. Social Security COLAs have a long history of causing beneficiaries to lose out on buying power due to a flaw in the way they're calculated.
In short, Social Security COLAs are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers. But the expenses Social Security recipients incur tend to differ quite a lot from the expenses workers face.
If you're retired and are worried your 2027 COLA won't suffice, your best bet is to find ways to generate income outside of your monthly benefits. That could mean going back to work on a part-time basis. Or, if you own a home with a spare room, renting it out could make sense, despite the potential inconvenience of having to share your living quarters.
If you're still working, know that no matter what Social Security COLAs amount to, they tend to fall short year after year. Save well for retirement so you have income to fall back on that can supplement those monthly benefits nicely.
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