Retirees receiving Social Security benefits count on cost-of-living adjustments (COLAs) to help their benefits maintain buying power. Since inflation means prices rise in most years, benefits must increase, or their real value will be suffer.
Each year, the Social Security Administration announces the following year’s COLA in October. That’s months away, and many retirees are eager to find out about any benefits bump as soon as possible.
Fortunately, there are a few key indicators to watch during the summer months that can provide early insight into how big the COLA will be. Here’s what they are.
Image source: Getty Images.
Check the CPI data
The first key metric retirees should watch is CPI-W data released by the Bureau of Labor Statistics (BLS). Each month, the BLS publishes different indexes that show how prices are changing for a specific basket of goods and services. That includes the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
The Social Security cost-of-living adjustment is based on the percentage change in the average CPI-W for the third quarter, compared with the average for the third quarter of the previous year. July’s numbers should be available on Aug. 12, and retirees will see how inflation is trending and how the CPI-W is changing. This will be a clear indicator of how big the benefits increase is likely to be.
Experts like the Senior Citizens League (SCL) will also use this CPI-W information to estimate the 2027 COLA. Their estimates will offer helpful guidance to retirees for their retirement planning. Right now, for example, the SCL is estimating a 3.8% COLA for 2027.
Monitor the Federal Reserve meetings
Seniors should also consider keeping a close eye on the Federal Reserve, which is scheduled to meet July 28 and 29. The Federal Open Market Committee will meet to determine if interest rates should either remain unchanged, rise, or fall. While the Fed’s benchmark rate doesn’t impact Social Security, it’s an indicator of how the central bank believes inflation is trending.
If the Fed raises rates, this likely means it believes inflation remains elevated and that tighter monetary policy is needed to try to achieve its 2% inflation target. This move would be a sign that inflation is not yet close to being under control and is still surging. And remember: Higher rates of inflation lead to bigger COLAs.
Retirees should monitor these key metrics this summer so they can be prepared for the upcoming year.
It’s also important to remember that a larger COLA isn’t typically a good thing because money in retirement plans does not automatically adjust upward for inflation, so retirees could lose ground on their other income sources when prices are rising. They should keep this in mind, so they don’t assume larger COLA numbers benefit them.
