Key Points
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A lower cost-of-living adjustment (COLA) means a smaller increase in benefits.
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COLAs are based on July, August, and September inflation rates.
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Designed to help seniors keep pace with inflation, COLAs sometimes miss the mark.
Projections are a funny thing. What seems like a sure bet can morph into something entirely different in the blink of an eye. For example, for weeks, the news has been that Social Security recipients can expect a 3.9% cost-of-living adjustment (COLA) in 2027. Now, new government inflation data indicate that the COLA is likely to be less than predicted thanks to this summer’s slight drop in inflation.
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Playing whack-a-mole with the numbers
While everyone seems to agree that 2027’s COLA will be higher than the 2.8% increase of 2026, their predictions of where the COLA will land are all over the place. For example:
- AARP: AARP forecasts a 2027 COLA of 3.5%.
- The Senior Citizens League (TSCL): A tiny bit more optimistic, TSCL is predicting the COLA will be 3.6%.
- Committee for a Responsible Federal Budget (CRFB): Coming in with the lowest projection, CRFB believes that the ultimate COLA for 2027 will be 3.2%.
According to CRFB, high COLAs may provide helpful near-term support to seniors. However, they impose high costs on a retirement fund that is only six years away from insolvency.
The odd way COLAs are determined
Legally, the annual Social Security COLA is calculated using the Bureau of Labor Statistics’ inflation data for July, August, and September. The specific data used is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a measure that tracks changes in the price of goods and services purchased by workers so designated.
If you wonder why the Social Security Administration (SSA) uses an index tracking how urban and clerical workers spend money, you’re not alone. The Senior Citizens League (TSCL), AARP, and other senior advocacy groups have long called for using the Consumer Price Index for the Elderly (CPI-E) to determine COLAs. However, the change would require an act of Congress.
A recently reintroduced Social Security proposal would require the government to use whichever calculation produces the larger increase. While the proposal has not become law and does not change 2027 benefits, a change could be on the horizon.
What seniors should do now
Approach all COLA predictions with caution. Inflation tends to be unstable, and there’s still plenty of time for the final percentage to shift before October. If history is any indication, there’s no real way of knowing what 2027’s COLA will be until the final percentage is announced in mid-October.
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