Retirees who collect Social Security benefits are almost certainly going to get a raise next year. While seniors see an increase in benefits most years, this is not necessarily guaranteed. In 2027, though, retirees are not only on track for a benefits bump but will likely see one of the biggest raises in four years.
The raise comes courtesy of the cost-of-living adjustment (COLA), and while it may seem like good news for retirees to get much bigger checks, that’s actually not necessarily the case.
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The 2027 COLA is shaping up to be a big one
The Social Security COLA will not be officially announced until October, but experts have already made projections of what it could look like.
The COLA is calculated by averaging the increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for July, August, and September. While we don’t have this data yet, we do have CPI-W data through May. And based on that data, independent Social Security analyst Mary Johnson is projecting a 4.7% COLA, while the Senior Citizens League (a senior advocacy group) has projected around a 3.8% increase.
If either of these projections pan out, the raise will be the biggest since 2023. In fact, here’s how big the COLAs have been in recent years:
January 2022: 5.9%
January 2023: 8.7%
January 2024: 3.2%
January 2025: 2.5%
January 2026: 2.8%
While COLAs had been trending downward since the high raises awarded in the aftermath of the pandemic, 2027 could mark a major reversal if the raise surges to 4.7% as projected.
Why a big COLA isn’t good news for retirees
On the surface, getting as much as 4.7% added to your Social Security check may seem like great news. But that’s actually not really the case. Since the COLA is directly calculated from inflation data, benefits will only increase by 4.7% if prices rise by 4.7%.
For retirees who likely also have retirement plans without automatic inflation adjustments, seeing prices rise by 4.7% is far from a positive. After all, if your 401(k) withdrawals can buy you almost 5% less, it’s hard to argue that’s good for your finances.
Of course, all this could change if inflation comes under control in the coming months, as July through September are the critical months for the CPI calculation. But as of right now, unless something major shifts, seniors can expect to see a good deal more money with each deposit of their benefits in 2027.
The time will come soon to start planning for this once the official COLA numbers in the critical months become a reality.
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2027 Social Security COLAs May Reach a Level Not Seen in 4 Years was originally published by The Motley Fool
