Key Points
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Social Security benefits will rise by 3.6% in 2027.
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Inflation could outpace that COLA, rendering it less useful.
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Medicare Part B costs could spike, eating into that increase.
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In recent years, seniors on Social Security have seen some pretty disappointing cost-of-living adjustments (COLA) to their monthly benefits. Last year’s Social Security increase was only 2.8%. And the year prior, benefits only got a 2.5% COLA.
That’s what makes the 2027 COLA seem so generous. Next year, benefits are set to increase by 3.6%, and many Social Security recipients are hoping that COLA will give them more breathing room in covering their costs.
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In reality, though, a 3.6% COLA isn’t necessarily something to celebrate. Here’s why.
Inflation could render it useless
The reason Social Security benefits are due for such a large increase in 2027 is that inflation has been a beast in recent months. Social Security COLAs are based on annual third-quarter inflation changes, so the fact that benefits are rising by 3.6% indicates that costs are up. The reality, though, is that inflation could continue to surge in 2027, rendering the upcoming 3.6% ineffective.
In October, the Federal Reserve kept interest rates steady, suggesting the central bank isn’t overly committed to aggressively lowering costs. Rate hikes by the Fed make borrowing more expensive, discouraging spending. That can be key to taming inflation, but the Fed doesn’t seem to be all in on consistent rate hikes. So seniors on Social Security could end up seeing a minimal boost from their COLA if prices keep soaring.
Medicare could chip away at it
Seniors who are on Social Security and Medicare at the same time pay for Part B, which covers outpatient care, out of their benefits automatically. If the cost of Part B rises substantially in 2027, it will chip away at the upcoming COLA.
Now this isn’t unique to 2027. There’s always the potential for Part B costs to rise from one year to the next. Seniors, however, may be more sensitive to Part B price increases than usual because the standard monthly premium increased by $17.90 earlier this year.
Next year’s increase won’t necessarily be quite as large. But it’s important to brace for a higher-than-average increase, just in case.
While a larger Social Security COLA may seem like something to celebrate in 2027, the reality is that a 3.6% increase may only go so far. Seniors who are struggling to cover their costs now should consider other ways to stretch their budgets and boost their income in 2027, such as returning to work in some capacity, to reach a better financial position.
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