A Bigger Social Security COLA Could Actually Leave Retirees Worse Off. Here's Why.

Even though we're not even halfway through 2026, there's already a lot of chatter about next year's Social Security cost-of-living adjustment (COLA). It's easy to see why.

Inflation picked up in March in the wake of the Iran conflict. Now, many retirees and their younger counterparts alike are struggling with higher costs.

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In January, Social Security benefits rose 2.8%. Many seniors are hoping for a larger COLA in 2027. Initial estimates say that this may be possible. But whether that's a good thing is up for debate.

What current 2027 COLA estimates look like

Social Security COLAs are based on inflation changes during the third quarter of the year. So any estimate you see today is just that -- an estimate.

The Senior Citizens League, an advocacy group, is projecting a 2.8% COLA for 2027 -- the same raise that came through this year. But independent Social Security analyst Mary Johnson recently raised her 2027 COLA projection to 3.2%.

At first, Johnson's number might seem like the more appealing one. But a higher COLA in 2027 could spell trouble.

What a larger COLA actually means

When Social Security benefits get a giant boost, it means that prices are rising sharply. In other words, a larger COLA generally won't help seniors gain buying power. The best any given COLA can usually do is help seniors keep up.

But COLAs often fail in that regard because they're based on broad inflation data. Social Security recipients tend to spend a large share of their income on healthcare, which tends to rise at a faster pace than inflation as a whole. So even when Social Security COLAs come in higher, beneficiaries tend to lose out.

How to attain better financial stability in 2027

If you're hoping a more generous 2027 Social Security COLA will help you get your finances to a better place in the new year, you should probably come up with a different plan. Even if next year's COLA comes in at 3.2% or higher, it probably won't help you achieve that goal.

Instead, take matters into your own hands. Find a part-time job you can manage to give your income a boost. Rethink your current expenses and find ways to cut back, even if it's just by a little bit. If things are really bad, be honest about whether you can afford your current home and explore options for downsizing.

Next year's Social Security COLA should be announced in October. Until then, any number you see is educated speculation. But rather than sitting back and hoping for a giant raise in 2027, take steps to improve your finances immediately so you don't prolong whatever current struggles you're experiencing.

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