Could We Be Looking at a Worst-Case Scenario for the Social Security COLA?

Social Security cost-of-living adjustments are critical for retirees' financial security. Unfortunately, early reports indicate that the news is not good for the COLA in the upcoming year.

In fact, we could be in for a worst-case scenario when it comes to the much-anticipated retirement benefits increase. Here's why.

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The Social Security COLA projections are out

Official news on the Social Security COLA is still months away, as the annual Social Security raise is calculated based on data from the third quarter of the year.

However, experts can begin making projections about the benefits increase early since the formula used to calculate it is based on a measure of inflation that is reported each month.

Based on the current inflation numbers, the Senior Citizens League (a senior advocacy group) is projecting that the COLA will be 2.8% in 2027.

This would mean retirees get a Social Security benefits increase that is exactly the same as the cost-of-living adjustment that they received this year.

Here's why the COLA is the worst-case scenario

Unfortunately, if these preliminary numbers pan out, the 2.8% COLA is actually the worst-case scenario for many retirees. That's because:

• A 2.8% inflation rate remains stubbornly high. The Federal Reserve (the U.S. central bank) targets a 2.00% inflation rate. Price increases of 2.8% year over year aren't great for seniors who tend to have a lot of money in retirement plans that are invested relatively conservatively, thanks to the fact that seniors don't have a ton of time to recover from market downturns
• A 2.8% raise means retirees won't be getting a larger benefit bump than they collected this year. In the post-pandemic era, COLAs have been fairly high, with retirees seeing benefits increases totaling as much as 8.7% and 5.9%. The 2026 COLA was relatively modest by comparison, and many seniors have been hoping for a larger raise next year, especially as Medicare premiums have been on the rise. Getting the exact same raise is sure to be a disappointment for those used to larger increases.

Of course, the numbers could still change.

If price growth slows, the inflation rate could drop, so retirees wouldn't lose so much ground due to the falling value of the dollar. On the other hand, pressure from rising oil prices could make inflation worse -- which would hurt seniors because of rising prices, but which could result in a larger increase in their Social Security checks and a raise more in line with their expectations.

Retirees will need to watch upcoming inflation reports to see which way things are trending. Seniors should also ensure they have a good investment mix and are maintaining a safe withdrawal rate to maximize the chances of their investments performing well enough to prevent them from losing ground.

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