Social Security Is Announcing a Change to Retirement Benefits on Oct. 14

On Oct. 14, Social Security beneficiaries will get news they have been waiting for all year. The news about what the 2027 cost-of-living adjustment (COLA) to their benefits will be will help retirees and others receiving Social Security to make financial plans for the upcoming year.

Image source: Getty Images.

Missed AI’s "Act 1"? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we’re only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue »

The COLA announcement is an important one because it lets Social Security recipients know for sure what their benefits will be next year. The big news will be revealed on Oct. 14 because that is when the price data necessary to determine the size of the COLA is ready. These benefit adjustments are based on third-quarter (July, August, and September) changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Consumer price indexes are published on a monthly basis by the Bureau of Labor Statistics with the goal of tracking inflation.

The Social Security Administration looks at changes to CPI-W index values and compares the data from the third quarter this year and last year to measure the average year-over-year change in the price of a basket of goods and services. Social Security recipients then get a cost-of-living adjustment equal to the percentage change.

COLAs happen in most, but not all, years. If the price data shows a drop, there is no COLA. A cost-of-living adjustment is widely expected for 2027, even though the adjustment will not be officially announced until Oct. 14.

How much extra money will retirees have in 2027?

Although the official COLA announcement has not yet been made, there are some early projections that provide insight into how much additional money Social Security recipients might collect next year. Specifically, the Senior Citizens League -- a much-respected and trusted organization -- predicts that benefits will increase by 3.5%.

This would be a more substantial increase than the 2.8% COLA provided to Social Security recipients in 2026. The 2027 benefits increase is indeed expected to be the highest since 2023, when retirees saw their payments rise by 8.7%.

The higher COLA number for 2027 is reflective of the fact that inflation has been running high, in part due to rising energy costs resulting from the ongoing war in Iran.

The COLA announcement doesn't mean retirees will get ahead

It's important for retirees to realize, however, that even if predictions pan out and a 3.5% increase is announced, the COLA will not necessarily result in more buying power.

Since the COLAs are calculated based on actual inflation that has occurred, the adjustments are not designed to provide seniors with extra money to increase their standard of living. Instead, the goal is for the extra funds to help seniors continue buying the items they have always purchased, which now cost more.

Some evidence also suggests that COLAs underestimate the inflation retirees actually experience, because CPI-W's basket of goods and services is not a perfect match for their spending habits.

Retirees who are 65 and over can also expect that Medicare premiums will likely increase in 2027 as well. And since these premiums are typically withdrawn from their Social Security payments, some of the additional funds will be diverted to pay for these extra health insurance costs rather than being deposited into their bank accounts.

Retirees should plan for the COLA announcement

Retirees should watch for official COLA news from the Social Security Administration on the 14th of October so they can make informed choices about retirement planning for the upcoming year.

This may mean adjusting budgets, confirming their income sources for 2027 (including withdrawals from retirement plans to supplement Social Security), and making any financial changes necessary to ensure they are on firm financial footing going into the new year.

The Motley Fool has a disclosure policy.