The 2027 COLA Could Be as High as 3.2% -- if Today's Inflation Holds

Some retirees and Social Security enthusiasts wonder what kind of increase there will be for Social Security benefits each year. The bump for 2026 was 2.8%, but in 2022, it was 8.7%. Such a big number may seem great, but remember that the nearly annual cost-of-living adjustments (COLAs) are no kind of windfall. They're simply meant to help retirees keep up with inflation. And they're not quite as good at that as they could be.

Here's a look at the upcoming COLA for 2027 and what it might mean for you.

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COLAs in perspective

The fact that Social Security benefits feature COLAs is one of the best things about Social Security. Without them, your benefits could lose half their purchasing power (or more) over 25 years. Imagine that your benefit is $2,000 per month. (The average monthly benefit for retirees was $2,079 as of March.) If it were still $2,000 in 25 years from now, you'd be looking at most things costing a lot more than they used to, so your $2,000 wouldn't go far.

The average long-term rate of inflation is around 3% -- so if your COLAs are 3% for 25 years, that would boost your $2,000 benefit in 2026 to a $4,188 one in 2051.

What to expect for 2027

Each year's COLA for Social Security is based on recent inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is calculated regularly by the Bureau of Labor Statistics. The Social Security Administration evaluates the year-over-year change in price levels between the third quarter of the current year and the year-earlier level to determine the coming year's hike.

The math is a little tricky, but we can leave that to the experts. We won't know the official increase for 2027 until this coming October, but various pundits are already making predictions.

Bipartisan senior advocacy group The Senior Citizens League (TSCL), for example, has estimated that the 2027 COLA will be 2.8% -- which is down from an earlier 4.% estimate. Independent Social Security and Medicare policy analyst Mary Johnson has forecast 3.2% -- an increase from her earlier prediction of 1.7%. The bottom line, though, is that we just don't know for sure yet what the increase will be.

Room for improvement

Another concern is this: The CPI-W, on which Social Security's COLAs are based, is a measure of inflation focused on costs borne by workers more than retirees. Many think that a better measure for calculating Social Security COLAs would be the Consumer Price Index for the Elderly (CPI-E), which weighs categories such as healthcare and housing more heavily.

The end result of this is that many seniors are not getting quite as big an increase in their benefits as they need. Whatever increase they get will be welcome, though, so stay tuned in October to see what the next benefits bump will be.

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