Will Social Security benefits rise 3.4% in 2027? Here’s what the latest estimate shows
Social Security recipients could get a 3.4% increase in their monthly benefits next year, according to a new estimate based on the latest inflation data. The forecast is lower than the 3.7% estimate made last month, as price increases showed signs of easing in July. But the expected increase would still be higher than the average Social Security cost-of-living adjustment of about 2.6%. The final 2027 COLA will be announced by the Social Security Administration in October.
Inflation is cooling, but prices remain high
Government data released Wednesday showed that consumer prices increased 3.4% in July compared with a year earlier. Inflation was 3.5% in June. Core inflation, which leaves out food and energy prices, also slowed slightly, coming in at 2.5% in July compared with 2.6% in June.
Both measures are still above the Federal Reserve’s 2% inflation target. The latest inflation numbers led Mary Johnson, an independent Social Security and Medicare policy analyst, to reduce her estimate for next year’s COLA. She had put the estimate at 4.7% in June and 3.7% in July.
“A moderation in inflation has resulted in bringing down my estimate from higher peaks earlier this year,” Johnson said in a statement, according to CNBC. The Senior Citizens League has a somewhat higher forecast. It now expects the 2027 COLA to be 3.6%, compared with its earlier estimate of 3.8%.
The final number is still months away
The 3.4% estimate is not the final increase retirees will receive. Social Security uses a specific inflation measure called the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, to determine the annual adjustment. The CPI-W increased 3.4% over the 12 months through July, compared with a 3.5% increase in June.
The government will also use inflation figures for August and September before determining the final COLA. The average CPI-W for the third quarter will be compared with the average from the same period a year earlier. As a result, the estimate could move higher or lower depending on what happens to prices over the next two months.
Retirees would get more than this year
If the estimate holds, Social Security benefits would rise more in 2027 than they did this year. Recipients received a 2.8% COLA in January. A 3.4% increase next year would also be higher than the 2.7% increase projected by Social Security’s trustees.
However, it would be much smaller than the increases seen during the worst of the recent inflation surge. Benefits went up 5.9% in 2022 and 8.7% in 2023. Johnson said the latest estimate should not be seen as a sign that retirees are necessarily getting comfortable with prices.
“It’s doubtful that anyone is celebrating because 3.4% is still higher than the average, which is around 2.6%,” Johnson said. “We are in a brave new world of breathtakingly high prices and costs,” according to USA TODAY.
A bigger cheque may not mean more spending power
For retirees, the increase could provide some relief as the cost of basic needs remains high. Healthcare, housing and transportation are among the major expenses that can put pressure on household budgets. A higher Social Security payment could help offset some of those increases.
But the extra money may not fully cover rising costs, particularly for healthcare. Johnson pointed to Medicare Part D as one area that could add to expenses next year. The Centers for Medicare & Medicaid Services said the Part D Premium Stabilization Program will end on January 1, 2027.
“Without the Part D pilot program’s increased subsidies to bring down premiums, this is likely to mean higher costs will be passed on to Medicare beneficiaries,” Johnson said, according to CNBC.
She said seniors should pay close attention to their Medicare choices during the next open enrollment period, which runs from October 15 to December 7.
Social Security faces a bigger problem
The size of next year’s COLA is only one part of the financial challenge facing Social Security. The program’s retirement trust fund is expected to be depleted by the end of 2032, according to Social Security trustees. If Congress does not make changes, the system would not have enough money to pay scheduled benefits in full.
The Committee for a Responsible Federal Budget has estimated an even lower 2027 COLA of 3.2%. The group has also warned that larger annual increases can put additional pressure on a Social Security system that is already facing a funding shortfall.
Without changes, beneficiaries could face a 22% reduction in benefits when the retirement fund is exhausted, the group said. For today’s retirees, that would amount to a loss of about $500 a month per person. Different proposals have been discussed to slow the growth of Social Security costs, including changes to how COLAs are provided to higher-income beneficiaries.