The Good News Is Your Social Security COLA Is Beating Inflation. The Bad News Is That May Not Last.

Inflation has jumped by 3.8% in April from a year ago, according to the latest Consumer Price Index data published by the Bureau of Labor Statistics. That's the highest spike in three years.

The good news for retirees is that the cost-of-living adjustment (COLA) forecast is also increasing. The Senior Citizens League, a nongovernmental advocacy group, estimates that the 2027 COLA will be 3.9% based on the most recent inflation data.

We'll have to wait until October to learn the official 2027 COLA from the Social Security Administration. However, there's unfortunate news for retirees expecting to lean on the COLA amid surging inflation.

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What history says about the COLA and inflation

For now, the expected 2027 COLA is outpacing the current inflation rate. But history suggests that that's unlikely to last.

Between 2010 and 2024, there were only five years in which the COLA surpassed the inflation rate for that year, according to a report from The Senior Citizens League. Even years with record-breaking COLAs often fell short. In 2022, for example, Social Security recipients received a 5.9% adjustment, but the inflation rate for that year was 7%.

Over time, these small shortfalls add up. The Senior Citizens League report found that between 2010 and 2024, Social Security benefits lost around 20% of their buying power. The average benefit at the time of publication was around $1,860 per month, when it should have been around $2,230 had it kept pace with inflation.

Potential benefit cuts could worsen the problem

Because COLAs are consistently falling behind inflation, Social Security doesn't go as far as it used to. But with the program facing a cash shortfall, there's a chance benefits could be cut in the next decade, too.

A new report from the Congressional Budget Office revealed that the Old-Age and Survivors Insurance (OASI) trust fund, which covers retirement benefits, is set to run out by 2032. If that happens, retirement benefits could be slashed by an average of 28%, according to the report.

To be clear, this doesn't mean Social Security is going bankrupt. The program will still be able to rely on payroll taxes to fund the majority of benefits. But because tax income has fallen short in recent years, the Social Security Administration has had to dip into the OASI fund to continue paying retirement benefits in full. If the OASI is depleted, that's one less income source to fund benefits.

What does this mean for retirees?

In short, Social Security could be even less reliable in the next few years. The COLA can help benefits keep up with inflation to some degree, but historically, it hasn't been very consistent. And if benefit cuts happen in the next six years, it will be even more difficult for retirees to depend on Social Security.

This puts retirees in a tough spot. If you're not yet taking Social Security, delaying your claim or finding other ways to maximize your benefits [ Link 2/2 ] help cushion you against inflation and cuts. For those already retired, it may be wise to consider a source of passive income to reduce your dependence on Social Security.

Those who rely on Social Security are in a difficult situation, and there's no easy answer. But sometimes, simply staying informed can help you better prepare.

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