Social Security's 2027 COLA Could Be 3.6%. Here's Why That's Not Necessarily Great News.
Key Points
Social Security's official 2027 COLA should be revealed in mid-October.
AARP's current estimate for that upcoming raise is 3.6%.
While a large boost might seem like a good thing, there are some problems with it seniors should know about.
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If you're just itching to know what your 2027 Social Security cost-of-living adjustment (COLA) will amount to, join the club. Many seniors are anxious to get news of their upcoming raise. And at this point, the wait is almost over.
The Social Security Administration is set to announce an official 2027 COLA on Oct. 14. That's when a key inflation report that's needed to calculate that raise is set to be released.
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Meanwhile, if you're too antsy to wait until mid-October to learn what COLA you'll get, you might choose to use current estimates as a guide. And based on recent inflation data, AARP is projecting that 2027's Social Security COLA could be 3.6%.
Given that this year's Social Security COLA was only 2.8%, a 3.6% boost might seem nice. But there are actually a couple of problems with a 3.6% COLA seniors should be aware of.
A larger COLA means more rampant inflation
The purpose of Social Security COLAs is to help ensure that benefits don't lose buying power as inflation drives costs up. In fact, COLAs are designed to match inflation to prevent that loss of buying power.
What this means, though, is that when COLAs are larger, price increases are higher. You can't decouple the two. And so while you may prefer a larger boost to your Social Security checks than a smaller one, just know that you're paying for that boost in a different way.
Social Security COLAs tend to fail seniors anyway
Even when Social Security COLAs are more generous, those raises do not tend to do a good job of keeping pace with inflation. The Senior Citizens League, an advocacy group, did some research and found that Social Security benefits lost 13.7% of their buying power between 2016 and 2026 due to insufficient COLAs.
A big part of the problem is that Social Security COLAs are based on changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But the CPI-W tracks the spending habits and costs incurred by wage earners, not retirees (you know, the folks who actually get to collect Social Security).
Advocates have proposed calculating COLAs based on a senior-specific index. But until such a change is implemented, those raises might continue to fall short, which is why a 3.6% COLA in 2027 may not end up being such a win.
It's too soon to know exactly what the upcoming Social Security COLA will be. But know that if it comes in at 3.6%, that's not necessarily something to celebrate.
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