Social Security’s 2027 COLA Forecast Was Just Updated. There’s Bad News and Good News for Retirees.

In many cases, Social Security benefits are the largest source of income for retired workers. For that reason, many retirees look forward to the annual cost-of-living adjustment (COLA), pay raises designed to protect the purchasing power of benefits from inflation. On that topic, Social Security beneficiaries recently got some bad news and some good news about the 2027 COLA. Here are the important details. Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue » Image source: Getty Images. The bad news: Social Security’s 2027 COLA forecast was just revised lower Social Security’s annual cost-of-living adjustments (COLAs) are calculated based on how inflation changes in the third quarter of each year, meaning the three-month period from July through September. In this context, inflation is based on a subset of the Consumer Price Index known as the CPI-W. Here’s the bad news: The Senior Citizens League (TSCL), a nonprofit advocacy group, recently cut its 2027 forecast to 3.8%, down from its previous estimate of 3.9%. The driving force behind the downward revision was the sharp drop in oil prices (and subsequent drop in inflation) following a ceasefire agreement between the U.S. and Iran last month. However, the ceasefire has ended and the two nations have resumed fighting. In turn, oil prices are once again climbing. Brent crude (an international benchmark) reached $85 per barrel on July 17, the highest level since mid-June. Without de-escalation in the near term, CPI-W inflation could accelerate in the third quarter, meaning the actual 2027 COLA could be higher than TSCL’s latest estimate implies. The good news: Social Security’s 2027 COLA may accurately reflect inflation for the first time since 2023 Some experts think COLAs should be calculated differently. The CPI-W is based on the spending habits of working-age adults with clerical or hourly-wage jobs. But working-age adults tend to spend money differently than retirees on Social Security. Specifically, retirees generally spend more on housing and medical care, which means the CPI-W inherently underemphasizes those spending categories. For that reason, certain policy analysts and politicians think COLAs should be tied to another subset of the Consumer Price Index known as the CPI-E, which measures inflation based on the spending habits of individuals aged 62 and older. Story Continues Importantly, CPI-E inflation has historically run about two-tenths of a percentage point above CPI-W inflation. The chart below compares the metrics: For each year, it shows the actual COLA (based on the CPI-W) and the hypothetical COLA (based on the CPI-E). Data source: Bureau of Labor Statistics. The chart compares the actual COLA based on CPI-W inflation to a hypothetical COLA based on CPI-E inflation. As shown above, the average COLA since 2016 would have been two-tenths of a percentage point higher had it been tied to the CPI-E rather than the CPI-W. So, if the CPI-E is truly a better measure of inflation for retired workers, the average COLA since 2016 has been 0.2% too small. That may sound inconsequential, but it means Social Security benefits lost 2% of their purchasing power over that period. Here’s the good news: In 2026, CPI-W inflation is running even with CPI-E inflation. Both metrics averaged 3.3% through June. That means Social Security’s 2027 COLA should reflect inflation from the perspective of retirees more accurately than it has in several years. Specifically, the CPI-W COLA has not matched or exceeded the hypothetical CPI-E COLA since 2023, meaning Social Security has arguably lost purchasing power in each of the last three years. But benefits are on pace to retain their buying power next year because the CPI-W and CPI-E are rising at the same pace. What’s behind that trend? Medical care inflation averaged 2.7% during the first half of 2026, well below overall CPI-W inflation at 3.3%. Additionally, housing inflation averaged 3.3% in the first half of 2026, matching CPI-W inflation. This is the first time since 2022 in which housing inflation has not run hotter than overall CPI-W inflation through the first half of the year. There is one more piece of good news for retired workers on Social Security. Since 2024, Medicare Part B premium increases have outpaced COLAs, contributing to the loss in Social Security’s purchasing power. But that could change in 2027. As my colleague Sean Williams explains, Medicare Part B premiums are forecast to rise 3.25% next year, below the projected 3.8% COLA for Social Security benefits. The $23,760 Social Security bonus most retirees completely overlook If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $23,760 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Many Americans leave money on the table in retirement. Learn more about these retirement strategies and more, available when you join Stock Advisor. View the “Social Security secrets” » The Motley Fool has a disclosure policy. Social Security’s 2027 COLA Forecast Was Just Updated. There’s Bad News and Good News for Retirees. was originally published by The Motley Fool View Comments