Key Points
-
Social Security benefits are eligible for an increase every year to adjust for inflation.
-
The amount of this increase is mandated by law based on a government agency’s findings.
-
Although we won’t hear the increase until October, recent data offers a good idea of what’s coming.
Inflation is rampant. That matters, because most investors are also consumers who pay for things like food, gasoline, and electricity. Officially, the Bureau of Labor Statistics reports that May’s prices for everything consumers spend money on were up an average of 4.2% year over year, rising at a pace not seen since May 2023, when price increases were slowing. Now, these rising costs could accelerate.
It’s not necessarily all bad, though. Assuming nothing changes in the meantime, anyone receiving Social Security benefits payments now or in the near future should see a nice-sized increase in next year’s payments.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
The COLA calculation is law, and that’s a good thing
The Social Security Administration implements the annual cost-of-living adjustments — or COLAs — for its benefit payments, but it doesn’t set them. By law, these yearly increases are based on the Bureau of Labor Statistics’ measure of the nation’s inflation…the same inflation data that just soared.
We don’t yet have the information that will be used to determine 2027’s increase. Since it’s based on the average annualized rate of consumer inflation for the three months that make up the third calendar quarter of any given year, we won’t know next year’s COLA until sometime in early October.
Assuming nothing major changes in the meantime, though (that is to say, the recent price increases are still in place then), next year’s COLA in Social Security benefits should be in the ballpark of 3.8%.
Image source: Getty Images.
But what does that mean in practical, tangible terms? It’s different for everyone, since these annual raises are flat percentage-based raises on your current benefits payments. Since recipients receive different-sized payments, each person’s increase will be unique.
Just for some bigger-picture perspective, we can use the average Social Security retirement benefits payment of $2,071 per month as a broad baseline. Based on that amount, a 3.8% cost-of-living adjustment would translate into an average monthly payment increase of about $79, pushing the typical retiree’s monthly check up to $2,150.
A working number until the official one is determined
That’s not etched in stone, to be clear. Again, things could change between now and the end of September. The Social Security Administration won’t announce its final, official COLA decision until October. The 3.8% estimate is very likely at least in the right ballpark, allowing you to start making some loose budgeting plans in the meantime.
Of course, this yearly cost-of-living adjustment never quite seems to be enough. If you’re thinking your current costs have outpaced your likely future income, now’s also the time to start figuring out how to get more out of your money, including your cash as well as your investments. Even the smallest of moves can make a measurably meaningful monthly difference. The nickels and dimes do add up.
The $23,760 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income.
One easy trick could pay you as much as $23,760 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Join Stock Advisor to learn more about these strategies.
The Motley Fool has a disclosure policy.
