Social Security COLA Predictions Rise as Inflation Hits a 3-Year High

Social Security recipients are on track for an increased cost-of-living adjustment (COLA) to their benefits next year, forecasters said Wednesday, as inflation soars above 4%.

The Senior Citizens League now predicts a 3.8% Social Security COLA for 2027, which would be a 1-percentage-point uptick from this year’s 2.8% adjustment.

Just two months ago, the group was only forecasting a 3.3% COLA. However, the Iran war's pressure on oil and gas prices has pushed overall inflation to the highest level since April 2023, which means beneficiaries will need a bigger boost to their benefits next year.

The COLA is supposed to ensure that the more than 75 million Americans who receive Social Security payments or Supplemental Security Income do not lose purchasing power as the value of the dollar declines.

If The Senior Citizens League's forecast is correct, the average increase in benefits due to the 2027 COLA would be about $77. That would lift the average Social Security benefit from $2,026 to $2,103.

The organization's latest projection is driven by May’s hot inflation numbers. The consumer price index (CPI) report, released by the Bureau of Labor Statistics on Wednesday, showed an annual inflation rate of 4.2% in May, up from 3.8% in April. Energy prices are the main culprit: Gas prices surged 40.5% in the past year and airfares have spiked 26.7%, according to the CPI data. (A slightly different index, the CPI-W, is the crux of the COLA calculation.)

COLA forecasts this time of year from The Senior Citizens League and others, like independent analyst Mary Johnson — who predicts a 4.7% 2027 COLA — are preliminary calls based on limited data.

The COLA, which is announced every year in October, uses a calculation that averages together the CPI-W for July, August and September. That means the first piece of the equation will still not be available for a couple of months — and it's difficult to predict how much Americans will be paying for gas later in the summer. At $4.15 per gallon, average gas prices are down more than 40 cents since peaking in May.

Core inflation, which excludes volatile energy prices, was more moderate at 2.9% in May, up 0.1 percentage points from the previous month's 2.8% mark. Analysts see this as a good sign.

"We do not yet see evidence that higher energy costs are meaningfully feeding through into broader core inflation," Gargi Chaudhuri, chief investment and portfolio strategist at BlackRock, said in a note Wednesday.

Still, Johnson says the next seven months will be challenging for older adults as they face higher costs while waiting for the COLA increase, which won't affect Social Security checks until late December at the earliest. Recent inflation is "especially difficult for low-income and older Americans living on fixed incomes,” Johnson says, adding that consumers are "spending more at the supermarket but bringing home less every trip."

Americans are also on edge about the looming Social Security funding shortfall. On Tuesday, a new government report found that the program's trust funds could be depleted as soon as 2034, requiring a 17% benefit cut unless Congress takes action.

Last week, Treasury Secretary Scott Bessent was pressed by Sen. Bill Cassidy, R-La., on the administration's plan to address Social Security insolvency during Senate Finance Committee testimony. Bessent said that "we inherited a mess" and pledged that "we are going to guarantee that the benefits remain as they are."