New projections indicate that Social Security benefits may increase next year,
providing a boost to your retirement plan. As inflation continues to climb, the cost-of-living
adjustment (COLA) is also increasing, meaning retirees could receive a boost in
their benefits in 2027. However, there’s a twist that could eat into the benefits increase, meaning retirees might not come out ahead in the end.
Here’s what you need to know about the potential Social Security increase and
another expense you might face in 2027.
How the COLA is calculated
The COLA is calculated annually and helps ensure that Social Security benefits
keep up with inflation. It’s based on increases in the Consumer Price Index for
Urban Wage Earners and Clerical Workers (CPI-W). Since the COLA is calculated
based only on third-quarter data from July through September, data affecting the
2027 COLA isn’t available yet. However, analysts have been predicting the COLA
for months, and those predictions keep changing because of inflation.
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The changing COLA predictions
COLA predictions have recently jumped steeply. The Senior Citizens League’s
latest projection puts the COLA at 3.9%, which would be a significant increase
from this year’s 2.8% COLA. In April, the Senior Citizens League predicted a
2.8% COLA.
Independent analyst Mary Johnson’s projection is even higher. Last month,
Johnson projected a 3.2% COLA, but her latest projection calls for a 4.2% COLA, which would be the fourth largest in 36 years.
The potential size of the benefits increase
The Senior Citizens League reports that if its projected 3.9% COLA were
implemented, average benefits for retired workers could increase by $81.17 per
month, totaling $974.04 per year. That could bring average benefits from $2,081.16 per month to $2,162.33
per month.
It’s a large jump from the projections for a 2.8% COLA made in April. If the
2.8% COLA were to go into effect, it would add approximately $58 in benefits per
month.
Factors driving the COLA increase
Inflation is behind the COLA increase. May’s Bureau of Labor Statistics
inflation report showed that the CPI-W rose 3.9% over the prior 12 months. The
increase was driven by gas price increases resulting from the war with Iran. In
March alone, the energy index increased by 10.9%, and gas prices continuously
climbed.
Additionally, the BLS’s all items index increased by 3.8% during the prior
12-month period. It marked the highest rate of inflation since 2022.
Before the Iran war began, Johnson had projected a 1.2% COLA, but the rising
costs in everything from energy to food have resulted in her higher COLA
projection.
The catch that could eat into a benefits increase
An increase in Social Security benefits may sound like a positive step that
could help retirees, but there’s a catch: Medicare costs are projected to
increase, too.
Medicare Part B premiums are projected to increase from $202.90 to $218.60 in
2027, according to the 2025 Medicare Trustees Report. The Medicare Part B
deductible is estimated to rise from $283 to $305.
Such increased expenses could quickly erode the Social Security benefits
increase that retirees may see in 2027. Plus, since Medicare premiums are
typically deducted from Social Security checks, retirees may never even see some
of those increased benefits before they go to paying for Medicare costs.
How Medicare costs eroded the 2026 COLA
The Medicare increase in 2027 could repeat what happened in 2026. In 2026, the
Medicare Part B premium increased from $185 to $202.90 per month. The 2026 2.8%
COLA added about $54 to retirees’ monthly checks, but the increased Medicare
costs immediately consumed about $18 of those increased benefits.
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Purchasing power erosion and the COLA
Though the COLA is intended to help benefits keep up with inflation, long-term
purchasing power erosion is occurring. According to the 2026 Loss of Buying
Power study, today’s Social Security benefits are only worth about 86 cents on
the dollar when compared to benefits in 2016; the study indicates that COLAs
have been too small to keep up with rising costs.
According to The Senior Citizens League, rising health care, housing, utility,
and insurance costs are outpacing inflation in other areas of the economy,
leaving seniors financially drained despite COLA increases. Retirees on fixed
budgets may be struggling to keep up with the higher costs, and benefits aren’t
keeping up. According to The Senior Citizens League, benefits would need to rise by roughly 15.7% to recover the purchasing power lost since 2016.
Bottom line
All COLA projections at this point are still just estimates, and the official
COLA announcement is scheduled for October. Until then, the projections may give
you a sense of what could happen, but nothing is definite until the COLA is
officially calculated. This is an important issue to monitor if you depend on
Social Security benefits.
Inflation is significantly impacting the cost of living, so this might be a good
time to check in with a financial advisor to review your savings and make sure
that you’re on track for
retirement.
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Author Details
Chris Lewis, CEPF
Chris Lewis has spent his career turning data into answers. As Director of Digital PR at FinanceBuzz and a Certified Educator in Personal Finance, he oversees the data journalism and media relations teams, digging into the personal finance topics that shape Americans’ lives at every stage, from Social Security and retirement income to 401(k) strategies, jobs, and real estate.
