When people hear that an above-average 3.6% Social Security cost-of-living adjustment (COLA) is likely on the way, they almost never focus on how this short-term boost could lead to a long-term benefit reduction. Beneficiaries think about how much the COLA will add to their current checks and how it’ll fit into their budgets next year. But there’s a bigger picture worth considering.
Social Security’s trust funds are running out of money, and we’re now just six years away from a 22% benefit cut, according to the latest Trustees’ Report. But a larger 2027 COLA could force potential Social Security cuts sooner than current estimates predict.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Image source: Getty Images.
Why a larger 2027 Social Security COLA could accelerate possible benefit cuts
A large 2027 Social Security COLA will increase seniors’ benefits in the short term, while also inflating the program’s expenses. Social Security’s expenses have exceeded its income since 2021, and it’s only been able to continue paying checks as scheduled by relying on its dwindling trust funds.
These trust funds are likely to run out faster than anticipated if benefits increase significantly next year, especially if this is followed by more above-average COLAs in years to come. But with the 2027 COLA not even locked in yet, an accelerated timeline to possible benefit cuts remains speculative.
We’ll learn the actual 2027 COLA on the morning of Oct. 14, 2026. But we’ll have to wait nearly a year for an update on how the COLA has affected Social Security’s solvency.
Why a 22% Social Security benefit cut is unlikely, and what might happen instead
It’s possible that Social Security’s trust funds will be depleted earlier than expected, but that doesn’t automatically mean benefit cuts will follow. The government will likely intervene to prevent major benefit reductions, just as it did the last time the program faced trouble in the 1980s.
We don’t know yet what the Social Security fix might look like, but there’s a good chance it involves raising payroll taxes on workers. Payroll and benefit taxes will be the program’s only source of funding once the trust funds are depleted.
A tax increase would create problems of its own, though. Workers may find it more challenging to save for retirement on their own, which could increase their future reliance on their Social Security checks. But this isn’t guaranteed, either.
For now, the best thing workers and seniors can do is to continue managing their money as usual. Keep saving for retirement if you’re still working and watching your spending if you’re already living on a fixed income. Once the government develops a long-term plan for Social Security, everyone will need to review their future plans.
The $23,760 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $23,760 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after.
Many Americans leave money on the table in retirement. Learn more about these retirement strategies and more, available when you join Stock Advisor.
View the “Social Security secrets” »
The Motley Fool has a disclosure policy.
Here’s the Downside to a 3.6% 2027 Social Security COLA That No One Is Talking About was originally published by The Motley Fool
