Gas Prices Jumped 21% in March. Here's How That Could Raise Your Social Security Benefit Next Year.

One of the best things about Social Security benefits is that they tend to increase every year, via cost-of-living adjustments (COLAs), helping you keep up with inflation. Without these increases, a benefit you receive this year -- such as, perhaps, $2,000 per month -- could lose half its purchasing power over 25 years. Yikes.

Inflation has roughly averaged 3% annually, over long periods, but there are occasional periods with extra-low or extra-high inflation. With gas prices surging lately, many are expecting a significant Social Security bump.

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Cost-of-living adjustments (COLAs) for Social Security

Let's set some context with some recent Social Security COLAs:

Source: Social Security Administration.

If you go back to 2015, you'll see that the COLA for that year was 0%. And in 1980, it was 14.3%. So it can certainly vary quite a bit.

The price of gas is surging, which boosts inflation

As we wonder what COLA is in store for us for 2027, we may start imagining a fat one, due to the rise in the cost of gas. In early April, the national average price for a gallon of regular gas was $4.08, according to AAA -- up 26% from $3.24 the year before.

In March, the pop in gas prices for the month was 21% -- the largest jump since 1967, when the Bureau of Labor Statistics began measuring it. That jump helped push up the overall increase in consumer prices by 3.3% year over year for March -- and by nearly a whole percentage point from February to March, the biggest such jump in several years.

The COLA ahead

The COLA for 2027 has not yet been announced and isn't going to be announced until October. But many people are guessing already. The bipartisan senior advocacy group Senior Citizens League (TSCL) has estimated that the 2027 COLA will be 4%. Independent Social Security and Medicare policy analyst Mary Johnson has forecast 3.2%.

The increase will clearly not match the increase in gas prices because it's based on price increases for a bunch of things, not just gas. And the measurement itself isn't as appropriate as it could be because Social Security uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). That index is based on changes in the average prices of household goods such as food, housing, and transportation, but it's focused on costs borne by workers more than retirees.

A better measure for calculating Social Security COLAs would be the Consumer Price Index for the Elderly (CPI-E), which weighs categories such as healthcare and housing more heavily.

So what can you expect for your 2027 COLA? Well, I think it's fair to expect a bump of probably 3% or more, but it's still too early to tell. If gas or other prices surge more soon, the increase could get much bigger. It won't be a windfall, though -- it will just be your benefits trying to help you keep up with inflation.

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