Social Security Benefits Could See a 3.5% COLA Boost in 2027

The picture of the coming year's increase in Social Security payments is getting clearer. Assuming nothing changes this month, the cost-of-living adjustment (or COLA) beginning in January should be on the order of a 3.5% increase in the size of recipients' current payments. That should raise the average retired worker's monthly benefit of $2,071 right now to somewhere around $2,143.

These numbers weren't randomly pulled out of a hat.

Next year's Social Security COLA is already 2/3 determined

Social Security's annual COLA isn't discretionary or arbitrary. It's the law. Due to a couple of different acts approved by Congress since 1972, today, the entitlement program is required to match any annualized changes to the Bureau of Labor Statistics' measure of the nation's urban wage earners and clerical workers' cost of living, or CPI-W.

The quirk: Only the third calendar quarter's average CPI-W data is used to determine the following January's COLA. This ensures that the adjustment reflects relatively recent reality, but it still gives the Social Security Administration time to implement the upcoming year's pay raises.

We've now got two of the three CPI-W numbers that will determine 2027's cost-of-living adjustment. August's Consumer Price Index for U.S. workers was up 3.5% year over year, following July's annualized growth rate of 3.4%. Although it's not part of the data that will be used to make the final calculation, June's annualized CPI-W change was also 3.5%, setting the stage for what should be another similar figure when September's number is reported in October.

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If it ends up being 3.5% this time around, that would mark the biggest COLA since 2022's 8.7% increase (although most cost-of-living adjustments between 2012 and 2020 were relatively weak).

Bigger matters to worry about right now

The likely pay raise that Social Security recipients will be getting beginning with their January payments is neither good news nor bad news. This increase merely reflects the higher prices they're already paying for basic living expenses like food, clothing, shelter, and healthcare. There's also an argument to be made that retired beneficiaries' COLA is inadequate because it under-reflects the true cost of healthcare that older Americans often face.

Perhaps the more pressing concern right now, however, is the additional pressure that a relatively high cost-of-living adjustment might put on an already-strained Social Security trust fund. As of its latest calculation, Social Security's Board of Trustees believes that -- without Congressional action in the meantime -- the program will be forced to impose a 22% reduction in benefits payments in 2032 if it hopes to have any chance of continuing to function beyond that point.

Regardless of how much or how little you're getting now or will be getting then, this possibility should turn all current and future beneficiaries into concerned voters.

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