COLA Estimate: Your Social Security Check Could Be Smaller Than Expected Next Year

Moderating inflation data is good news for budgets, but it may be less favorable for Social Security beneficiaries expecting a raise next year, according to new analyst estimates. Retirees and other recipients could get a lower cost-of-living adjustment, or COLA, in 2027 after government data released Wednesday showed that lower energy costs were contributing to a slower rate of price increases.

Estimates for the Social Security 2027 COLA have fallen in tandem with inflation figures. The Senior Citizens League (TSCL), a nonprofit advocacy group, now predicts that next year’s COLA will be 3.6%. While lower than the 3.8% COLA projection it published for the last two consecutive months, a 3.6% hike in benefits would be the highest in four years. It’s also nearly a full percentage point higher than this year's 2.8% COLA.

TSCL calculated that the average beneficiary’s monthly payment would rise by nearly $70, from $1,937.53 to $2,007.28, if its current projection of a 3.6% COLA was implemented today.

A separate estimate from Mary Johnson, an independent Social Security and Medicare policy analyst, also showed a dip. Johnson's 2027 COLA projection is currently 3.4%, down incrementally from 3.7% a month ago, and sharply lower than the 4.7% estimate she projected just two months ago.

Analysts recalculate their estimates for the upcoming Social Security COLA increase every month when the government releases new consumer price index (CPI) data, but July's inflation metrics matter more than most because they go into the calculation for the next year's adjustment.

Why 2027 COLA projections dropped

The Bureau of Labor Statistics just released inflation data for July showing a small drop in the annual inflation rate. The headline CPI came in with an 0.1% increase for the month, or 3.4% for the year ending in July, down slightly from its 3.5% June reading. Even with this modest improvement, though, inflation is still well above the Federal Reserve’s 2% target.

“It’s doubtful that anyone is celebrating because 3.4% is still higher than the average,” Johnson said in a statement Wednesday. “We are in a brave new world of breathtakingly high prices and costs,” she observed.

The annual COLA is intended to help Social Security’s roughly 75 million recipients by protecting the purchasing power of their benefits, which can be eroded by climbing prices. While people and businesses generally welcome lower inflation, it can be disadvantageous for Social Security beneficiaries because of how it is calculated.

The SSA is scheduled to announce the 2027 COLA on Oct. 14. The agency determines the amount of the annual adjustment by taking monthly inflation figures from the third quarter of the year — that is, July, August and September — and averaging them.

While the Consumer Price Index for All Urban Consumers, or CPI-U, is the inflation data Americans tend to be most familiar with, the SSA uses a slightly different data set to calculate the COLA: the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

Some advocates argue that this data set, which tracks the expenses of younger, employed Americans, doesn’t reflect the financial burdens of retirees, who comprise about three-quarters of Social Security’s roughly 75 million beneficiaries. The burden of high healthcare costs, in particular, is disproportionately borne by older Americans, they say.

Why volatile inflation makes forecasting harder

Predicting next year's COLA, which helps retirees and other beneficiaries budget for the coming year, is more difficult when inflation bounces around a lot, as it has done this year, according to Shannon Benton, TSCL's executive director.

“One of the biggest wild cards in this year’s forecast has been inflation’s volatility," she said in a statement. Headline inflation has ranged between 2.2% and 4.4% this year. For figures that typically move by a fraction of a percentage point, that's a significant difference. It’s especially bad news for the more than 1 in 5 Americans who receive Social Security if inflation dips during that third-quarter period the agency uses as its benchmark for calculating COLA, then rises again.

In the past few years alone, whipsawing inflation has made for big fluctuations in the annual COLA, ranging from a 2.5% adjustment last year to a recent peak of 8.7% in 2023 — the highest COLA in more than four decades.

Benton highlights volatile energy prices as a primary contributor to recently unstable inflation. "As of August 6th, oil prices currently sit approximately 24 percent higher than this time last year," she wrote, adding, "Fuel prices have downstream effects on inflation because they raise prices for producing and transporting goods, costs that get passed onto consumers."