Social Security checks for retirees could rise by $73 a month in 2027. Experts want to change how COLA increases are calculated.

Forecasts for next year’s Social Security cost-of-living adjustment (COLA) have edged lower, with the average retiree now projected to receive around $70 more a month in benefits in 2027, according to experts.

The AARP on Wednesday revised its forecast to a 3.5% increase in payments for retirees, slightly down on last month’s previous estimate of 3.6%.

AARP’s projection puts the average monthly Social Security benefit for a retiree at $2,086 in July, with a 3.5% COLA increasing that amount by about $73.

A benefit increase of 3.5% would be the biggest COLA adjustment to payments since 2023, reflecting higher inflation.

In separate analysis, The Senior Citizens League’s (TSCL) COLA Watch lowered its 2027 estimate from 3.8% to 3.6%, according to its announcement published Wednesday.

TSCL analysis includes benefits for survivors and people with disabilities as well as retirees. It projects that beneficiaries across the three groups would receive an average of $69.75 more per month, with payments rising from $1,937.53 to $2,007.28.

The seniors group has warned that the projected average payment would still fall about $700 short of what it says is the typical older person’s monthly living expenses of roughly $2,700.

The findings have prompted the organization to urge Congress and the president to “raise benefits so seniors can meet basic cost-of-living standards.” It has also renewed its calls for a different method of calculating the annual cost-of-living adjustment.

For advocates seeking a broader overhaul, however, simply raising benefits would not address what they see as a deeper problem: the formula used to calculate annual increases.

Why do they believe the current formula falls short, and what would they use instead?

How is COLA calculated at the moment?

The cost-of-living adjustment is based on the Bureau of Labor Statistics’ Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), and is used to calculate annual benefit increases for tens of millions of Social Security recipients.

The CPI-W is worked out by tracking the average price changes of a “market basket” of goods and services such as food, housing costs, clothing, transport and more.

Each autumn, the Social Security Administration (SSA) looks at the average CPI-W across July, August, and September and compares it with the figure from the same period a year earlier.  

If the CPI-W has gone up, benefits increase by the same percentage, starting the following January. If the index has remained unchanged or fallen, benefits simply stay the same. Payments never go down.

What is proposed to replace it — and why?

The Senior Citizens League wants COLA for retirees to be calculated based on a newer metric called the Consumer Price Index for the Elderly (CPI-E).

Introduced by the U.S. Bureau of Labor Statistics (BLS) in 1987, the CPI-E was an experimental scale designed to measure price changes according to the actual spending habits of older adults. 

It uses the same underlying price collection system as the main CPI, but instead calculates the consumer basket to reflect how older Americans actually spend their money, taking a snapshot of retirees’ spending priorities as well as how much they are out of pocket.

“The COLA has been sometimes viewed as inadequate, in that it does not reflect the spending patterns of Social Security beneficiaries,” Rich Johnson, vice president of financial security with the AARP Public Policy Institute, told Yahoo News.

“People 62 and older spend more on housing and medical care, for example, and less on transportation, food and beverages, and apparel,” he added. “Social Security beneficiaries are 62 or older (except for some receiving disability benefits), and are older than most urban wage earners and clerical workers.”

What would the CPI-E mean for retirees’ benefits?

As the CPI-E is based on an older person’s living costs, it places a higher mathematical “weight” on categories of spending that experience a higher price inflation.

As a result, the CPI-E “generally increases faster” than the CPI-W, Johnson said.

“If the Social Security COLA had been based on the CPI-E instead of the CPI-W, the COLA would have been higher every year during the 40-year period from 1986 to 2025 except for eight years,” the AARP expert said.

While Johnson said the average difference in the COLA over those 40 years “is small—just 0.2 percentage points,” those small annual differences accumulate over time and “could become significant.” 

“If a COLA based on the CPI-E had gone into effect in 1986, the 2025 Social Security benefit for someone who began collecting in 1986 would have been 8.1 percent higher than under the actual COLA that occurred in those years,” he added.

So, why hasn’t it been adopted yet?

Although the index dates back nearly 40 years, the CPI-E is still considered to be in the early stages of development, meaning it could be less statistically reliable. 

“One reason this index has not been adopted is that it is considered experimental,” Johnson said.

The CPI-E also draws its findings from a significantly smaller number of people compared to the CPI-W, which may make it more susceptible to sampling errors.

It also assumes that the working-age people and retirees shop at the same types of stores and live in the same geographic areas, which some fear could skew the results. 

The index allocates 49.1% of retirees’ costs to housing compared to 42.7% for workers. As many seniors have paid off their mortgages, the price of housing may in fact play a smaller role in their cost of living, the Congressional Budget Office has argued.

While the jury may be out on how to adjust senior payments, The Senior Citizens League has reiterated the need for Social Security payments to catch up to seniors’ spending.

TSCL’s executive director, Shannon Benton, has emphasized that “seniors don’t experience inflation as a percentage on a chart.”

“Frankly, it’s infuriating that seniors must wait for a COLA to catch up with prices that have already driven up their grocery bills, housing costs, healthcare expenses and insurance premiums,” she said in a statement Wednesday.

“A higher COLA is welcome, but seniors shouldn’t have to lose purchasing power year after year before Washington acknowledges what they’re experiencing.”

The SSA has been contacted for comment.