If there’s one piece of key Social Security information seniors tend to look out for each year, it’s news of their upcoming cost-of-living adjustment, or COLA.
COLAs are designed to help Social Security benefits keep pace with inflation. Without them, benefits would lose buying power over time.
Earlier this year, Social Security benefits got a 2.8% COLA. But inflation has been outpacing that raise, causing many seniors a world of financial stress.
The silver lining is that soaring inflation seemed to be setting the stage for a huge COLA in 2027. In fact, independent Social Security and Medicare analyst Mary Johnson said in June that the 2027 COLA could amount to 4.7%.
But Johnson has since walked back that projection and lowered it. And at this point, seniors may no longer be looking at a Social Security COLA in the 4% range.
What the latest estimates say
Johnson’s 4.7% COLA estimate came on the heels of a scorching inflation report for May. But in June, inflation cooled moderately. It’s still elevated on an annual basis, but it fell on a month-to-month basis.
In the wake of that data, Johnson lowered her 2027 COLA forecast to 3.7%. That falls in line with the latest projection from the Senior Citizens League, a non-partisan advocacy group, which estimates next year’s COLA at 3.8%.
More data is needed for a final number, so here’s what to do in the interim
Social Security COLAs are based on third quarter inflation changes. So until data arrives for July, August, and September, we won’t know for sure what the upcoming raise will amount to. However, there are steps you can take to build a 2027 budget even without knowing that number.
First, assume a modest raise. It’s unlikely that next year’s COLA won’t at least match the 2.8% raise that arrived earlier this year. You can try using that as a starting point to see how much your Social Security benefits might increase. If you create your budget based on a 2.8% raise and next year’s COLA arrives in the 3% range, you’ll be ahead of the game.
Also plan proactively for a big Medicare Part B increase. We don’t know how much the standard Part B premium will cost in 2027, but this past year, the price rose by $17.90. If you assume a similar increase, you’ll be giving yourself a pretty good cushion.
From there, take a look at your expenses and see how well you can cover them based on your projected Social Security checks plus additional income streams you might have, like withdrawals from an IRA or other investments. If the numbers don’t look great, you can consider spending changes or see about boosting your income in other ways.
You’re allowed to hold down a job while collecting Social Security, and working part-time could give your retirement salary a nice boost. And thanks to the gig economy, you don’t necessarily have to sign up to bag groceries or answer phones in an office. You can moonlight as a rideshare driver, pet-sitter, and more.
If inflation continues to cool over the summer, next year’s Social Security COLA may not end up at 4.7%. It may not even end up at 3.7%. But rather than allow that to be a point of stress, it’s best to figure out how to cover your expenses based on a much more modest raise. And then, if the official number is higher, you’ll be in an even better position.
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