Key Points
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Social Security benefits will increase by 3.6% beginning in January 2027.
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The annual COLA is based on changes to the CPI-W inflation measure.
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Social Security recipients have consistently lost purchasing power on their benefits over the years.
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Arguably Social Security’s most anticipated day has arrived: the announcement of the annual cost-of-living adjustment (COLA). The annual COLA is intended to give Social Security recipients a benefits boost to help keep up with rising inflation and maintain some purchasing power.
Beginning in 2027, Social Security recipients will receive a 3.6% boost to their monthly benefit thanks to the COLA, the largest bump since 2023. Let’s take a look at how benefit recipients got here.
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How the annual COLA is decided
The annual COLA is set based on the CPI-W inflation metric. It’s a monthly inflation metric that tracks the prices of goods and services faced by clerical and wage-earning workers. Expenses considered include housing, transportation, food and beverages, medical care, and various other costs.
The Social Security Administration (SSA) uses a three-step process to set the annual COLA:
- Average the CPI-W numbers for the third quarter (July, August, September) of the current year.
- Compare the current year’s CPI-W average to the previous year’s average.
- Set the upcoming COLA as the percentage increase, rounded up to the nearest tenth of a percentage. If the average is the same as or lower than the previous year, benefits will not increase. Benefits are not reduced in that situation.
In the third quarter this year, here’s how much the CPI-W increased year over year:
- July: 3.4%
- August: 3.4%
- September: 3.7%
How does 2027’s COLA compare to previous years?
The 3.6% 2027 COLA is one of the larger increases in recent years. It’s the third-largest in the past decade, the fifth-largest in the past 30 years, and the 17th-largest since the COLA began being set automatically based on CPI-W. Below are the past 10 COLAs before 2027:
| Year |
COLA |
| 2026 |
2.8% |
| 2025 |
2.5% |
| 2024 |
3.2% |
| 2023 |
8.7% |
| 2022 |
5.9% |
| 2021 |
1.3% |
| 2020 |
1.6% |
| 2019 |
2.8% |
| 2018 |
2% |
| 2017 |
0.3% |
Source: SSA.
Despite 2027’s above-average COLA, Social Security recipients face two issues. First, the COLA doesn’t help with the inflation they’re currently facing. It’s a reactive adjustment, not a proactive solution. Knowing you’ll get a benefits bump in two and a half months is nice, but it won’t help when you go to fill your gas tank this week.
The second issue is that the COLA doesn’t always keep up with the real inflation seniors experience, and benefits have lost purchasing power over the years. According to the senior advocacy group, The Senior Citizens League (TSCL), Social Security benefits have lost 13.7% of their buying power since 2016. That isn’t ideal for anyone, but especially the 39% of recipients that TSCL says depend on Social Security for all of their retirement income.
There aren’t any quick fixes for those problems right now, so the best recipients can do is budget with the expectation that the COLA won’t perfectly offset inflation. The 3.6% bump is welcomed, though, I’m sure.
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