Each year, retirees look forward to an increase in their Social Security benefits. The increase is called a cost-of-living adjustment, and it’s based on the year-over-year increase in the Consumer Price Index, as calculated in the third quarter each year.
This year’s COLA is just 2.8%, which raised benefits by an average of $56 per month, according to the Social Security Administration. Slowing inflation could push next year’s adjustment even lower. If The Senior Citizens League (TSCL)’s predictions are correct, the 2027 COLA will be just 2.5%.
While the actual figure won’t come out until October, preparing for a smaller increase will help you manage your expenses no matter what 2027 brings.
Slowing inflation is a good thing, but the Social Security COLA generally fails to keep up with it.
That’s because the SSA uses the Consumer Price Index for Urban Wage Earners and Clerical Workers to calculate the adjustment. Social Security beneficiaries often are not wage earners or clerical workers, and many don’t live in urban areas, so the COLA may not reflect the actual effects of inflation on retirees’ budgets.
Housing and healthcare costs are a good example. They typically rise faster than the overall inflation rate, and retirees typically spend a larger portion of their income on them compared to younger groups, per the TSCL.
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Preparing now for a smaller COLA can reduce the impact of inflation on your 2027 budget. Here are seven tips to get you started.
Increase your income. In 2026, early retirees can earn $24,480 per year with no decrease in benefits. That amount increases to $65,160 in the year you reach retirement age, and the benefit deductions end the month you turn 67.
Eliminate unnecessary expenses. Check recent bank and credit cards statements for forgotten subscriptions and membership fees, and any recurring expenses you don’t use or enjoy.
Make small adjustments in spending. A few dollars per month across several expenses adds up over the course of a year. You might downgrade streaming services to allow commercials, for example, or eliminate your Amazon Prime membership in favor of placing fewer but larger orders that qualify for free delivery.
Look for ways to save on mandatory expenses. Comparison shopping can alert you to potential savings on insurance, utilities, wireless/internet/cable and other necessary expenses.
Take advantage of senior discounts. Check to see if retailers and service providers you use offer senior discounts. Some require AARP membership, but not all do.
Build an emergency fund. Open a high-yield savings account to hold emergency savings you can tap into for unexpected expenses, or to supplement your income next year if inflation stretches your budget too thin.
Fund a separate savings account for Medicare premiums. Medicare premium and deductible increases offset your COLA, according to the Center for Retirement Research at Boston College. You can make up for it with separate savings reserved specifically for that purpose.
