New COLA Estimate Suggests Social Security Checks Could Be Smaller Next Year
Cooling inflation may offer some relief to household budgets, but it could also mean a smaller Social Security cost-of-living adjustment in 2027. New inflation data released by the government has prompted analysts to lower their projections for next year’s COLA.
Lower energy costs helped slow the pace of price increases in July, leading to reduced estimates for the Social Security increase that retirees and other beneficiaries could receive next year.
2027 Social Security COLA Projection Drops to 3.6%
The Senior Citizens League (TSCL), a nonprofit organization that advocates for older Americans, now estimates that the 2027 Social Security COLA could be 3.6%.
That is below the organization’s previous 3.8% estimate, which had remained unchanged for the past two months. However, a 3.6% increase would still be the largest COLA in four years and would be significantly higher than the 2.8% COLA for 2026.
Based on TSCL’s latest estimate, the average monthly Social Security benefit could rise by nearly $70, increasing from $1,937.53 to $2,007.28 if a 3.6% adjustment were applied today.
Another Analyst Lowers 2027 COLA Forecast
Independent Social Security and Medicare policy analyst Mary Johnson has also reduced her projection.
Johnson currently expects a 3.4% COLA for 2027, compared with a 3.7% forecast one month earlier. The figure has fallen substantially from the 4.7% estimate she issued two months ago.
COLA forecasts are updated throughout the year as new Consumer Price Index data becomes available. July’s inflation report is particularly important because July is the first month included in the official calculation for the following year’s Social Security adjustment.
Why 2027 COLA Estimates Have Declined
The Bureau of Labor Statistics reported that consumer prices increased 0.1% in July, while the annual inflation rate stood at 3.4%, slightly below June’s 3.5% reading.
Although inflation has eased, it remains above the Federal Reserve’s long-term target of 2%.
Johnson noted that a 3.4% inflation rate is still elevated compared with historical averages and that households continue to face unusually high prices across many everyday expenses.
How Social Security Calculates the Annual COLA
The annual COLA is designed to help protect the purchasing power of Social Security benefits from inflation. Approximately 75 million people receive Social Security benefits.
The Social Security Administration is expected to announce the official 2027 COLA on October 14.
The adjustment is calculated using inflation data from the third quarter—July, August and September. The SSA compares the average inflation level during those three months with the corresponding period from the previous year.
Rather than using the widely reported Consumer Price Index for All Urban Consumers, or CPI-U, Social Security bases its calculation on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.
Critics Say CPI-W May Not Reflect Retiree Costs
Some Social Security advocates have questioned whether CPI-W accurately represents the spending patterns of older Americans.
The index primarily measures expenses faced by working-age wage earners, while retirees account for roughly three-quarters of Social Security beneficiaries.
Healthcare costs are one major concern. Older Americans often spend a larger share of their income on medical services, meaning their expenses may rise differently from those measured by CPI-W.
Inflation Volatility Makes COLA Forecasts Uncertain
Shannon Benton, executive director of TSCL, said changing inflation trends have made this year’s COLA forecast especially difficult.
Headline inflation has ranged from approximately 2.2% to 4.4% during the year, a wide range for an economic indicator that often moves by only fractions of a percentage point.
This volatility can create problems for beneficiaries because only third-quarter inflation is used for the COLA calculation. If inflation falls during July, August and September but rises again afterward, beneficiaries could receive a smaller adjustment while still facing higher prices.
More than one in five Americans receive Social Security benefits, making changes in the annual COLA financially significant for millions of households.
Social Security COLAs Have Varied Sharply
Recent inflation swings have resulted in significant differences in annual Social Security increases.
The COLA has ranged from around 2.5% last year to 8.7% in 2023, which was the largest adjustment in more than four decades.
Energy prices have been one of the major factors contributing to inflation volatility. Benton noted that, as of August 6, oil prices were approximately 24% higher than a year earlier.
Higher fuel costs can affect more than transportation expenses. Businesses often face increased costs for manufacturing and delivering products, and those expenses may eventually be passed on to consumers.
Current estimates suggest the 2027 Social Security COLA could fall between 3.4% and 3.6%, although the final figure will depend heavily on August and September inflation data.
While cooling inflation may benefit consumers overall, a lower third-quarter inflation rate could reduce the increase Social Security recipients receive next year.
The official adjustment will become clearer once all three months of third-quarter CPI-W data are available and the Social Security Administration announces the final COLA on October 14.
