Why Early COLA Estimates Are Unreliable -- and What Retirees Should Do Instead

If you're collecting Social Security and have been for a while, you should be aware that your monthly benefits can change from one year to the next. That's because Social Security benefits are eligible for an annual cost-of-living adjustment, or COLA.

COLAs are meant to help seniors on Social Security keep up with inflation. Many retirees collect Social Security for decades. Without a system to adjust those monthly checks to account for higher costs, retirees would be pretty much guaranteed to lose buying power.

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Meanwhile, even though we're not even at the midway point of 2026, there's already an estimate of what 2027's Social Security COLA might be. But you may not want to get too caught up in that number.

Why early COLA estimates don't mean much

In mid-May, The Senior Citizens League, an advocacy group, said it expects Social Security's 2027 COLA to amount to 3.9% -- a notable increase from the 2.8% raise seniors got earlier this year. That announcement came in the wake of a huge uptick in inflation in April.

But that number should be taken with a grain of salt. The reason? Social Security COLAs are based on third-quarter changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

In April, soaring fuel costs drove the CPI-W upward to a 3.9% year-over-year increase. But if the overseas conflict that's driving higher fuel costs settles down soon, costs could start to retreat. That could result in lower inflation levels in July, August, and September, which are the three months used in Social Security's COLA formula.

A better way to improve your financial situation

You may be banking on a generous Social Security COLA in 2027 to improve your financial outlook and gain more buying power. But it's too soon to know whether 2027's increase will actually be larger than 2026's or not.

Even if next year's COLA comes in at 3.9%, a large increase in the cost of Medicare Part B could easily whittle that raise down. That's because enrollees in Social Security and Medicare pay their Part B premiums out of their monthly benefits.

If you'd like to see your retirement income get a nice boost, your best bet may be to create that boost yourself. You can do so by working part-time, starting a business, or even freelancing on occasion as your schedule allows.

It's also a good idea to be mindful of your spending if money is tight. Making a few strategic changes to your budget could make things less stressful financially, which may be especially helpful if next year's Social Security COLA comes in lower than what the experts currently predict.

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