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If you count on Social Security to pay your bills in retirement, then you know that there’s perhaps nothing more important than your annual cost-of-living adjustment, or COLA. Those annual raises are what help your benefits keep up with inflation.
Earlier this year, Social Security benefits received a somewhat stingy 2.8% COLA. But initial projections are calling for a much larger COLA in 2027. And if current estimates end up being accurate, the typical senior on Social Security could see their monthly benefit rise by $98.
What next year’s COLA forecast looks like
Inflation has been running hot in recent months in the wake of the conflict in the Middle East. That’s a bad thing for consumers’ wallets, but a good thing for Social Security.
Social Security COLAs are tied directly to inflation — specifically, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). When there’s a rise in the CPI-W during the third quarter of the year compared to the previous year, Social Security benefits go up.
Following the most recent CPI-W reading, independent Social Security analyst Mary Johnson raised her 2027 COLA forecast to 4.7%. If that projection is accurate, it spells the largest Social Security COLA in years.
Meanwhile, the average monthly retirement benefit for Social Security recipients today is $2,083. If benefits get a 4.7% COLA, it means the typical senior on Social Security could see their monthly income increase by $98 in 2027.
Don’t start counting that extra money yet
An extra $98 a month could do a lot of great things for your retirement finances. But one important thing to realize is that the aforementioned 4.7% COLA is just an estimate.
Social Security COLAs are calculated based on inflation readings in July, August, and September. Johnson’s projection is coming in well ahead of that data, so it’s too soon to know what next year’s COLA will actually amount to. And if the official COLA ends up being smaller, a $98 average raise will be off the table.
It’s also important to remember that Medicare premium hikes could eat into next year’s Social Security COLA — whatever it amounts to.
Seniors who are enrolled in Social Security and Medicare at the same time pay their Part B premiums out of their benefits automatically. So even if a 4.7% COLA comes through, if Part B’s cost rises substantially, seniors could be left with a lot less money.
All told, banking on Social Security COLAs to make ends meet isn’t a great idea — especially because no given COLA is ever guaranteed until the Social Security Administration makes it official.
If you’re hoping for a large raise in 2027, a better idea may be to examine your spending to find ways to reduce your costs while boosting your income in other ways. That could involve going back to work on a part-time basis or changing the way you invest so your portfolio generates more income regularly.
Word of an official 2027 COLA should come through in October. Until then, you can hope to see your monthly benefits rise by $98, but know that it may not actually happen.
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