The 2027 Social Security COLA Will Boost Average Benefits by $901 Annually. Will It Be Enough?

The 2027 annual cost-of-living adjustment (COLA) is officially 3.6%, much higher than expected coming into 2026.

According to data from the Social Security Administration (SSA), average monthly benefits among retired workers in August were roughly $2,087.52, meaning roughly $25,050 annually. Adding another 3.6% is about $901.80 in additional annual benefits.

Still, retirees have grappled with persistent inflation and a higher cost of living. Will the 2027 COLA be enough?

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How we got here

The Social Security COLA is designed to ensure that retirees' purchasing power keeps pace with inflation, so naturally, it is determined by inflation data.

While the market tends to focus on the Consumer Price Index for All Urban Consumers (CPI-U), the COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a subset of the CPI-U.

The SSA looks at the CPI-W for the third quarter of the year (July, August, and September), averages it, and then compares it to the same number from the year prior. The percentage difference is the following year's COLA. COLAs cannot be negative, even if there were deflation.

Heading into 2026, inflation was expected to keep declining, and most market strategists were actually forecasting interest rate cuts by the Federal Reserve.

But all that changed once the Iran war began, sending oil prices soaring, which in turn has driven inflation higher and led the Federal Reserve to raise interest rates once already, with another hike expected before year-end.

The fifth-highest COLA in 35 years

As far as COLAs go, 3.6% is nothing to sniff at. In fact, it's the fifth-highest COLA in 35 years.

Retirees are also coming off several years of either decent or even very high COLAs, largely due to soaring inflation in 2021 and 2022 that has yet to come down to the Fed's desired 2% target:

• 2021: 5.9%
• 2022: 8.7%
• 2023: 3.2%
• 2024: 2.5%
• 2025: 2.8%
• 2026: 3.6%

But as most retirees know, the COLA is a bit of a double-edged sword: While benefits are rising, so is the cost of living. Since the pandemic, prices have soared, making affordability a top issue among most consumers.

Additionally, many stakeholders have argued over the years that COLAs have failed to keep pace with inflation. The nonpartisan Senior Citizens League (SCL) regularly conducts an annual study on this matter.

In the SCL's 2026 Loss of Buying Power study, the organization found that benefits in 2026 are worth only about $0.836 on the dollar compared to 2016, meaning benefits have lost 13.7% of their purchasing power over the past decade because COLAs have not kept pace with real-world inflation.

Interestingly, the SCL noted that one of the main reasons COLAs are not keeping up is because the government uses the CPI-W to calculate the COLA, which the organization believes measures prices that aren't reflective of a typical senior's budget.

The SCL would prefer that the COLA formula use the Consumer Price Index for Americans 62 Years of Age and Older (CPI-E) to calculate COLA, which would require an act by Congress.

However, it does appear that the high COLAs since the pandemic have helped somewhat. For instance, the SCL's 2024 study found that retirees had lost about 20% of their purchasing power since 2010 due to COLAs not keeping pace with inflation.

Still, most retirees will need significant supplemental savings, in addition to annual benefits, to cover years of expenses without regular income from a salary or job. So while the high COLAs may have made some progress, they likely won't solve affordability issues for Social Security retirees.

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