Why the Large Social Security COLA Increase is Bad News for Americans
Social Security beneficiaries are on track for their largest cost-of-living increase in four years, potentially pushing the average monthly retirement check above $2,000.
But the bigger raise comes with an uncomfortable reality: Americans are getting a larger Social Security boost because inflation is running hotter.
The new Social Security cost-of-living adjustment, or COLA, for 2027 is 3.6 percent, up from the 2.8 percent increase beneficiaries received in 2026 and 2.5 percent in 2025.
“Social Security will implement this cost-of-living adjustment for 76 million Americans, giving them greater financial stability,” Social Security Administration (SSA) Commissioner Frank J. Bisignano said in a statement. “Under President Donald J. Trump, Social Security is delivering better, faster, higher-quality service for the American people.”
With the new COLA, the Senior Citizens League estimated that an average monthly Social Security payment of $1,940.08 would increase by more than $67 per month to make the average above $2,000.
While millions of retirees will welcome the higher payments, the reason for the increase is less encouraging.
The COLA is determined by inflation. So the higher prices climb, the larger the adjustment generally becomes, meaning the bigger 2027 raise reflects the rising cost of goods and services beneficiaries have already been confronting.
“When Americans see a larger-than-expected increase to Social Security’s yearly cost-of-living adjustment, the initial reaction from beneficiaries is one of excitement. After all, they’re seeing substantially more money added to their monthly check,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek. “However, below the surface is actually something far from exciting, as a higher COLA translates to higher prices on everyday items the uptick in funds issued are meant to cover.”
Why It Matters
Social Security’s annual COLA isn’t a traditional pay raise designed to make retirees richer. Its purpose is to help prevent inflation from eroding the purchasing power of existing benefits.
The SSA calculates COLAs using the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as the CPI-W, comparing the average for July, August and September with the corresponding previous third-quarter average. Subsequently, a higher COLA signifies that the inflation measure used by Social Security has risen more quickly.
The COLA was 2.5 percent in 2025 and 2.8 percent in 2026. That means the 2027 adjustment will be the largest since 2023. That year beneficiaries received an 8.7 percent adjustment following the inflation surge associated with the pandemic.
What to Know
With the COLA for 2027 announced at 3.6 percent, the percentage increase will apply to benefits at all different levels. That means people with larger benefits generally receive a larger dollar increase.
But because Social Security’s adjustment is meant to protect beneficiaries against increases in consumer prices, it therefore generally becomes larger when its measure of inflation rises.
“If inflation wasn’t trending higher, you wouldn’t get the same pay bump, but that would also equate to prices being stagnant, which is good for the consumer,” Beene said. “After seeing a more moderate COLA in the years following peak inflation in 2022, the probable increase this year shows rising costs are still taking their toll on Americans.”
The 8.7 percent COLA that beneficiaries received in 2023, for instance, was an exceptionally large increase, but it came as post-pandemic inflation had reached its peak. The same logic applies in 2027 on a smaller scale.
“A bigger Social Security COLA is a reminder of how much more expensive life has already gotten. A smaller one would generally mean inflation was cooling. But there’s a difference between prices falling and prices simply rising more slowly,” Michael Ryan, a finance expert and the founder of MichaelRyanMoney.com, told Newsweek.
“Imagine getting a new job and moving from North Dakota to New York City. Everything costs more, so you tell your boss you need a cost-of-living raise [COLA]. He gives you one. Great! But it’s not like you’re suddenly driving a Bentley and taking a private jet to the Hamptons every weekend. You’re just trying to afford the same lifestyle you had before.”
Medicare Could Take Away Part of Increase
There is another reason beneficiaries won’t necessarily see their entire COLA reflected in additional disposable income: Medicare.
Medicare Part B premiums are generally deducted from Social Security payments for beneficiaries enrolled in Part B.
The standard Part B premium is $202.90 per month this year, according to AARP. The Medicare trustees project that it could increase by $6.60 to $209.50 per month in 2027.
The trustees also project that the annual Part B deductible could increase from $283 to $292.
So Medicare would still absorb part of the additional Social Security income for beneficiaries paying the standard premium.
“Unlike that job relocation, Social Security uses one national adjustment regardless of where someone lives or how much their personal expenses increased,” Ryan said. “Add Medicare premiums and rising everyday costs, and some retirees can still lose purchasing power even with a bigger check.”
What Happens Next
The COLA will affect all 2027 benefits, but beneficiaries are expected to receive personalized notices detailing their new benefit amounts in December.
“Prices are still rising even though it is not as rapid. I don’t think seniors will feel this COLA much given the fact what impacts them most is food and energy,” Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek. “Those price increases far outpaced what any COLA will provide.”
Newsweek’s reporters and editors used Martyn, our AI assistant, to produce this story. Learn more about Martyn here.
Contact Newsweek editors on this story: Jenni Fink and Gray R. Thomas