Retirees and retirees-to-be have some pressing concerns from year to year regarding Social Security. They wonder, for example, how big the next cost-of-living adjustment (COLA) will be. And they wonder how much of an impact it will have on their monthly (and annual) Social Security income.
The latest COLA for 2027 was just announced, at 3.6%, considerably higher than last year’s 2.8% hike. That doesn’t reflect generosity, though — it’s merely a reflection of the higher inflation we’ve experienced lately. Here’s a look at how these increases have affected benefits.
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What did a 2.8% COLA do?
How much of a bump you get each year depends largely on the size of your benefit. As of September, the average monthly Social Security benefit was $2,089. A year ago, it was $2,010. That 2.8% bump boosted a $2,010 benefit by about $56, turning it into a $2,066 one.
How will the new 3.6% COLA benefit retirees?
That’s old news, though. What’s of most interest now is how the latest COLA will boost Social Security benefits. Here’s that same table, with the latest numbers:
|
Old monthly benefit
|
3.6% increase
|
New monthly benefit
|
|
$1,000
|
$36
|
$1,036
|
|
$1,500
|
$54
|
$1,554
|
|
$2,000
|
$72
|
$2,072
|
|
$2,500
|
$90
|
$2,590
|
|
$3,000
|
$108
|
$3,108
|
|
$3,500
|
$126
|
$3,626
|
|
$4,000
|
$144
|
$4,144
|
Data source: Calculations by author.
And here, the numbers are annualized:
|
Old annual benefit
|
3.6% increase
|
New annual benefit
|
|
$12,000
|
$432
|
$12,432
|
|
$18,000
|
$648
|
$18,648
|
|
$24,000
|
$864
|
$24,864
|
|
$30,000
|
$1,080
|
$31,080
|
|
$36,000
|
$1,296
|
$37,296
|
|
$42,000
|
$1,512
|
$43,512
|
|
$48,000
|
$1,728
|
$49,728
|
Data source: Calculations by author.
Putting COLAs in context
Any kind of increase in retirement income is great, but don’t assume that these COLAs will have you fully keeping up with inflation.
For one thing, they’re based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a measure of inflation that’s not focused on older folks. It tracks changes in the average prices of goods and services purchased by workers, not retirees. A better measure for calculating Social Security COLAs would be the Consumer Price Index for the Elderly (CPI-E), which weighs categories such as healthcare and housing more heavily.
Also, a lot depends on your spending patterns. If you spend a lot on, say, healthcare, and healthcare costs skyrocket, an annual Social Security COLA will likely be far from what you need.
Note, too, that with Social Security’s surplus running out, it’s projected that around 2032, income from workers’ Social Security taxes will only be sufficient to pay about 78% of retirees’ benefits. So that’s a much bigger issue than whether you get a 2.8% or 3.6% COLA bump.
Also, even if Congress addresses Social Security’s shortfall and fixes it, an annual income of $20,000 to $45,000 or so from Social Security is likely to be much less than what most of us will want or need. So it’s important to save and invest for retirement on your own as much as you can.
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