The Social Security COLA Forecast Was Updated for 2027: What Retirees Need to Know

There are many retired Americans who end up collecting Social Security for decades. And that makes the program’s cost-of-living adjustments (COLAs) such a crucial part of the program.

The purpose of Social Security COLAs is to help ensure that benefits can keep up with inflation. Over time, prices are likely to increase naturally. By adjusting benefits accordingly, Social Security allows recipients to maintain their buying power.

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Before 1975, Social Security COLAs had to be voted in by legislation. Since then, they’ve been automatic and tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

At this point, many Social Security recipients are eager to know what their 2027 COLA will look like. And they’re going to have to sit tight for about another month.

Since Social Security COLAs are based on third-quarter CPI-W data, an official raise can’t be announced until mid-October, when September’s report is expected to be released. But data from July and August can give seniors some idea of what to expect.

In fact, August’s data was just released. And in light of that, the 2027 COLA projections have been updated.

What the latest numbers say about the 2027 Social Security COLA

Many seniors are hoping for a larger COLA in 2027 than the 2.8% increase that took effect earlier this year. Based on data from July and August, it’s looking like they may get their way.

The Senior Citizens League, an advocacy group, now puts the 2027 Social Security COLA at 3.5%, as does independent Social Security analyst Mary Johnson. AARP, meanwhile, puts the 2027 COLA at 3.6%.

It’s worth noting that earlier in the year, Social Security COLA forecasts were coming in at over 4%. But since inflation cooled over the summer, the current projections are running lower. That’s not necessarily a bad thing, since a smaller Social Security COLA is a sign that prices aren’t rising so rapidly.

There’s still time for the number to wiggle

While there’s a good chance the 2027 Social Security COLA will be around 3.5% to 3.6%, things could change in either direction. If inflation picks up this month, the 2027 COLA could come in closer to 4%. If inflation continues to cool, the upcoming COLA might inch closer to 3%.

Either way, Social Security recipients should tune in on Oct 14, which is when the official COLA announcement is slated for. Those on Medicare, however, shouldn’t start counting their raise just yet.

Seniors who are on Social Security and Medicare pay for Part B out of their monthly benefits. If there’s a big increase in the cost of Part B, it will eat into whatever COLA arrives.

Medicare typically announces Part B costs well after Social Security’s annual COLAs are revealed. So some beneficiaries will have to wait longer to get the whole story.

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The Social Security COLA Forecast Was Updated for 2027: What Retirees Need to Know was originally published by The Motley Fool